Stock market is where many buyers and sellers are aggregated to buy and sell shares and securities. Stock trading includes both, shares which are listed and the ones which are private. Listed shares are convertible and corporate bonds, whereas, private ones are traded through equity crowdfunding.
Mutual Fund investments are managed by mutual fund companies. As investors, they come together to invest their savings in different securities of bonds, short term instruments and even metals.
Why Invest in Stock Trading rather Than Mutual Funds?
It is a fact that mutual fund investments already come with a disclaimer that, they are subject to market risks. Here are some of the important distinctions between the two:
While choosing from mutual fund companies, you can just hope that yourchosen scheme does well. You won’t be able to influence your portfolio. This means diversification is the only option left. Stock trading, whereas, gives you flexibility of customizing your portfolio. This means you can buy and sell shares as you want.
As mutual funds are managed by group of investors, they are risk averse. This means, they would prefer to preserve capital and abide by the industrial norms, instead of giving returns. Traders, instead, can give more returns than mutual funds. This is because, they work on their own and are capable of generating constant profit.
If risks occur in mutual funds, the only option for you is to diversify those funds further and sell units. Trading whereas, can give you the benefit of making use of covered call, protective put, long and short straddles etc.
Although the exchanged traded funds in trading have a nominal transaction fee to buy. However, mutual funds are loaded with commissions, exit fees, sales loads, annual distribution fees and withdrawal penalties.
Mutual funds might appear that they are transparent, because they show all the holdings of their investments and allocations, but they report only four times a year. Traded funds on the other hand, are required to report their each and every security holding, on a daily basis.