Diversification
Mutual fund companies invest in different stocks, bonds, and money-market investments; hence their risk is far lesser than stocks.
Management
Mutual funds allow investors to collect their money and hand it over to professional investment management. These managers are quite experienced with illustrious industry background and are very well qualified academically.
Higher Upside Potential
Individual stocks carry a higher upside potential than the mutual funds. Stock prices tend to fluctuate much more than mutual funds, so your chances of earning good returns are more.
Returns and Risk
Actually risk and return are related to each other. Higher the risk, higher the prospective return; lower the risk, lower the prospective return. Mutual funds try to lower the risk by investing in broad spectrum of individual stocks, bonds, or other securities.
Efficiency
Mutual funds can invest huge amounts of money. Usually they trade without paying any commission and have personal contacts at the major brokerage firms.
Conclusion
Investing in stocks will give you higher return than mutual funds. But investing in mutual funds reduces your risk. Mutual funds are excellent for financing retirement plans and for investors who do not have the time or energy to study individual stocks.
It has been observed that most expert traders in stock market also invest in mutual funds. It is highly advisable to invest in both of mutual funds and stocks. But for more experienced investor who has time and energy, it is better to invest a large part of their money in individual stocks.
Tags: Mutual Funds, Stocks Comparison