Mutual Funds Vs Individual Stocks has always been a debatable issue. While some like to play safe with mutual fund investment, some others prefer investment in individual stocks.
When any investor invests in any mutual fund all that he is required to do is pay the
Shareholder Fees and Fund Operating Fees. The whole work of managing funds, starting from
Market Research and analysis of stock and bond price and recent market trends up to final
Allocation of Funds or assets in various stocks and bonds is completely done by the Professional Fund Managers employed by the
Investment Management Company. In this case, the fund management remains in the hands of the fund managers of the mutual fund company. But, in case of
Direct Investment in individual stocks, the total control remains in the hands of the individual investors.
But, most of the people agree about the fact, that mutual funds hold some important benefits over and above Individual Stocks. So, to get the actual depiction of
Mutual Funds Vs Individual Stocks,we will discuss the advantages put forwarded by Mutual Funds.
- Diversification
The greatest advantage the mutual funds hold over individual stocks is the characteristic of Diversification. The core concept of mutual funds is to Diversify Investment in order to lower the risk of investing. As the mutual funds allocate their funds into stocks of different companies and in different bonds, the risk is diversified. If at a time, market price of some particular stocks fall, the loss of the mutual fund may be offset by the rise in price of some other stocks held by that particular mutual fund. But, individual stocks do not hold this advantage of diversification. If the prices of the stocks go down in the market, the investor is sure to lose money.
- Professional Management and Efficiency
As mutual funds are managed by the professional fund managers who are specialized in their field, they carry out the research and analysis work much more efficiently and naturally speculate more correctly about the market trends of stock prices and bond prices. In the other case, Individual Stock investment is done directly by the investors who are in most cases common men who don't have much knowledge about the stock and bond markets.
Other than this as the mutual funds get a lot of money from people to invest in, they can reap the benefit of Economies of Scale with the large sum of invested money.