What is the difference between equity shares and equity mutual funds? What factors should I look at when deciding invest?
-Kamlakar
When you invest in shares of a company, you buy into the ownership of the company. You face appreciation or depreciation in the price of the share depending on the profits or losses made by the company. Compared to that, a mutual fund is diversified basket of shares. A mutual fund pools in the money put in by all its investors and invests the same in the shares of numerous companies. This gives you the benefit of diversification. The other advantages of investing in mutual funds are that you can invest even small amounts and you get the expertise of a professional manager.
For all of these advantages, you have to pay an expense to the fund company, which amounts to around 2.25 per cent per year. This expense is cut from the fund NAV on a yearly basis.
Overall, a mutual fund is a convenient option for an ordinary investor to get exposure to equities.
This article was originally published on January 13, 2012.
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