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How are mutual funds different from shares?

Dhirendra Kumar compares investing in mutual funds with shares


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How are mutual funds different from shares? How do we manage them?
- Ramesh

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Equity mutual funds are a collection of shares wherein you entrust your money to professional managers who buy and sell shares on your behalf. The gains, deducting the expenses, in proportion to your investments, are returned to you. In the stock market, stock prices go up and down. The same gets reflected in the net asset value (NAV) of a mutual fund for all the days when the market is open. Thus, when you invest in a mutual fund, you buy a collection of shares. On the other hand, when you invest in a share, you buy a company's ownership.

Like shares, mutual funds are of different types. There are shares of different sectors as well as of companies with different sizes, such as large, mid-size and small companies. Similarly, there are funds that invest only in the shares of large, mid-size or small companies. Besides, some funds focus only on specific sectors.

However, one should keep it simple and buy a multi-cap fund, which provides complete flexibility to the fund manager to invest in different sizes of companies across sectors.

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