Introduction:
In this blog, I’m going to share about index funds, vs mutual funds vs stocks. Which one is better for the investment? Index funds and mutual funds are always managed by fund managers but stock investment is done by the investor itself or with the help of a research analyst, if you have knowledge of how to select stocks it will give you an effective return. However, risk in stock investment is very high in comparison to mutual funds and index funds.
What is an index fund?
An index fund is a type of mutual fund that is passively managed by the fund manager. It is a mirror of the Nifty 50 and Sensex. The expense ratio in index funds is slightly low. Index funds replicate the Nifty 50 and Sensex. For example, if the Nifty 50 has a top 50 company, it means you are going to invest in a top 50 company.
What is mutual fund?
Mutual funds are pools of money from investors and that pool is managed by by qualified fund manager. Fund managers invest on your behalf and choose mutual funds for the investors. For managing your money asset management company charges a commission which is known as the expense ratio. In comparison to index funds mutual fund expense ratio is high but the return is also effective in mutual funds.
What is equity (cost)?
When you buy a share of the company so you become the owner of the company and shareholder of the company. In comparison to other funds, equity gives more return but it has more risk and is more volatile. If investors don’t have knowledge of how to select they can lose money in the stock market. Two ways investors can choose stock. A) fundamental analysis. B) Technical analysis.
Difference between Index fund vs mutual fund vs equity (stocks).
| Aspects | Index fund | Mutual Fund | Equity (stocks) |
| Style of management. | Index fund passively managed by fund manager. | Mutual fund is pool of money which managed by fund manager and AMC. | Equity is an actively managed fund. Investors should know about fundamental and technical analysis while investing in equity. |
| Fee And charges. | Index fund having low expense ratio. | Mutual fund having moderate expense ratio. | Equity is an active fund that is managed by investors themselves, or he can seek the help of a financial advisor, who can charge a high or low fee. |
| Risk. | Low Risk. | Moderate risk. | High risk. |
| Volatile. | low. | Moderate. | High. |
Conclusion:
Index funds, mutual funds, and equity funds have different features, nature, risk, and return. However, investors can choose wisely according to their capacity and risk. These are best for the long term and every investment should be long-term because long-term gives you compounding returns. Index fund vs mutual fund and equity become important arguments. Everyone wants to earn consistent returns so these are best for the long term so try to find out the best index fund and mutual fund, equity on the best website. But this is not a buying and selling recommendation. You can invest at your own risk.