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When investing in health in India, people mostly consider going for a life insurance policy. However, there are some different options available as well. Two of the most popular investment options are mutual funds and equities. Mutual funds and equities are both investments that can help you grow your wealth over time.
However, there are some key differences between the two investment options.
This blog will examine the difference between equity and mutual funds in India. We will discuss the different types of mutual funds and equities and the risks and rewards of each investment option.
What are Mutual Funds?
A mutual fund is an investment fund that pools money from a group of investors and invests it in various market tools including stocks, bonds, and other types of investments.
Mutual funds in India offer several advantages over other investment options.
- First, mutual funds provide diversification. This means your money is invested in various securities, which helps reduce your risk.
- Second, mutual funds are professionally managed. This means you do not have to worry about picking individual stocks or bonds.
- Third, mutual funds are relatively low-cost.
What are Equity Investments?
Equities, or stocks, are company ownership shares. When you buy stock in India, you essentially buy a small piece of the company. The value of your stock will go up or down depending on the company's performance.
Equities offer the potential for high returns, but they also carry a higher risk than other investment options. If you wish to invest in equity market, make sure you do proper market research before putting your money in it.
Different Types of Mutual Funds in India
There are many different types of mutual funds in India, each with its investment objective. Some of the most common types of mutual funds in India include:
- Equity funds: These funds invest in stocks.
- Debt funds: These funds invest in bonds.
- Hybrid funds: These funds invest in a combination of stocks and bonds.
- Index funds: These funds track a specific market index, such as the Nifty 50.
- Exchange-traded funds (ETFs): These funds are similar to mutual funds, but they are traded on an exchange like a stock.
Different Types of Equities in India
There are also many different equity investment types, each with a risk and reward profile. Some of India's most common equities include:
- Large-cap stocks: These are stocks of large companies with a market capitalisation of over ₹1 lakh crore.
- Mid-cap stocks: These are stocks of mid-sized companies with a market capitalisation of between ₹500 crore and ₹1 lakh crore.
- Small-cap stocks: These are stocks of small companies with a market capitalisation of less than ₹500 crore.
- Growth stocks: These are stocks of companies that are expected to grow their earnings rapidly.
- Value stocks: These are stocks of companies that are trading below their intrinsic value.
Equity Fund Vs Mutual Fund: Key Differences
Feature |
Mutual Funds |
Equities |
Investment vehicle |
Pooled investment fund |
Individual shares of ownership in a company |
Risk |
Lower risk |
Higher risk |
Diversification |
More diversified |
Less diversified |
Management |
Professionally managed |
Self-managed |
Costs |
Lower costs |
Higher costs |
Liquidity |
More liquid |
Less liquid |
Which is Better — Mutual Funds or Equities?
Here comes the ultimate question — equity vs mutual fund — which is better?
It depends on your individual investment goals and risk tolerance. SIP investment in mutual funds may be a good option if you want diversification and low costs. However, equities may be a better choice if you are looking for higher returns.
Since mutual funds are managed by fund managers, the investor does not have to worry about choosing the right funds or market tools for investment. On the other hand, for equity investments, the investor needs to identify the right company in a prolific segment to invest their money. While equity has the potential to return very high margins, they pose greater market risk as compared to mutual funds.
Ultimately, the best way to decide which investment option is right for you is to talk to a financial advisor. They can help you assess your needs and goals and recommend the best investment option.
Here are some additional factors to consider when choosing between mutual funds and equities:
- Your investment goals: Are you looking to grow your wealth over the long term, or do you need access to your money in the short term?
- Your risk tolerance: How comfortable are you with the risk of losing money?
- Your time horizon: How long do you have until you can access your money?
- Your investment knowledge: How much do you know about investing?
Once you have considered these factors, you can start narrowing down your options and choose the best investment option.
Pro tip: There is a ladder of investment that one should ideally follow. Many people often rush into investment right after they start earning. But before investing in market elements, one needs to secure the life of his family member. That is why it is important to purchase a life insurance plans as the first step towards investing. And if you do not have a life insurance plan yet, you can choose a reliable product like Tata AIA life insurance policy.
To Sum it Up
Mutual funds and equities are both popular investment options in India, so learning about the critical differences will help you with your investment process.
Mutual funds in India offer diversification and low costs, while equities in India offer the potential for high returns. Your ideal investment option will depend on your individual investment goals and risk tolerance.
