Equities and mutual funds are two options for investors looking for wealth creation for various life goals. While the ultimate aim of both are the same, they differ in several aspects. Knowing the difference between equities and mutual funds can help you make an informed choice. So, what are these differences? Let’s find out.

What are mutual funds?

Mutual funds pool money from many investors and invest in underlying securities. They are professionally managed by fund managers, and equity mutual funds invest your money in different companies’ equities. Think of mutual funds as a big basket comprising equities of more than one company, where the contribution is from more than one investor.

What are Equities?

Equities refers to the shares of ownership in a single company. When you invest in equities, you become the shareholder of the company and the returns you get depend on the company’s performance. Unlike mutual funds, equities investment entails buying and owning individual company shares.

Equities or mutual funds - what should you choose?

Now that you know the differences between equities and mutual funds, the question is where you should put your money. Investing in both can be rewarding if done right. That said, you need to consider certain factors before making a choice. These include:

• Time and convenience for market monitoring

If you have the time to monitor markets, understand them, and do the number crunching, you can go for equities investment. On the other hand, if you can’t do so, mutual funds are a better option, as the fund manager does that on your behalf and makes investment decisions.

• Diversification needs

If you want greater diversification, mutual funds are the way to go. On the other hand, equities offer limited diversification as your investment is into equities.

• Risk tolerance

If you have a high-risk tolerance, you can invest in Equities. On the other hand, if you have comparatively lower risk tolerance, mutual funds are a better option. Mutual funds are relatively less risky as they spread your investments across securities.

Summing it up

Both equities and mutual funds have the potential to offer inflation-beating returns in the long run. Regardless of your choice, invest in fundamentally strong equities or mutual funds and keep investing for an extended period. Don’t act under the impulse and seek professional help, if required.