Difference Between Trading and Mutual Fund

When it comes to the stock market, there are multiple ways to add your money to the stocks. Trading and investing are the two significant ways by which you can add your money to the stock market.


Business Quiz

Test your knowledge about topics related to business

1 / 10

Office is a place where ___________.

2 / 10

Cash flow is:

3 / 10

Modular furniture __________.

4 / 10

In case of death or insolvency of a partner the firm is?

5 / 10

What is revenue?

6 / 10

Over-capitalization results from __________.

7 / 10

A Company is called an artificial person because _________.

8 / 10

A building jointly owned is called office________.

9 / 10

If a general manager asks the sales manager to recruit some salesman on his behalf, it is an instance of ___________.

10 / 10

Which of the following countries are part of the WTO?

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This article will cover the difference between trading and mutual funds. It is worth noting here that Mutual Funds are a type of investment.

While trading is all about adding your money at the start of the day into the stock market and withdrawing it by the end of the day.

The traders use the fluctuation in a stock’s price during the day. Some traders will sell the stock at the end of the day even when they are making a loss.

This is because every day, they will pick a stock and do trading on it.

On the other hand, mutual funds are a way to invest money in the stock market for the long term. The mutual fund industry is very organized and regulated.

Some companies have launched mutual fund schemes in the market. The customer can purchase a particular Mutual Fund.

After that, the company will have a fund manager who will then invest the money of the customer in the stock market for the long term.

A customer can also withdraw his money from the mutual fund at any time. But usually, mutual fund investments are made for the long term. 

Key Takeaways

  1. Trading involves buying and selling stocks, bonds, or other securities in financial markets. At the same time, a mutual fund is an investment vehicle pooling money from multiple investors to invest in a diverse portfolio of assets.
  2. Trading requires a more active approach, with investors making individual decisions and managing their portfolios. In contrast, mutual funds are managed by professional fund managers who make investment decisions on behalf of investors.
  3. Mutual funds offer diversification and professional management, reducing the risk for individual investors, while trading allows investors more control and flexibility in their investment strategy.

Trading vs Mutual Fund

The difference between trading and mutual funds is that a person will sell his shares at the end of the day in the case of trading, whereas, in the case of mutual funds, the person will hold onto his investment for the long term until he needs some money in his life.

Trading vs Mutual Fund

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Comparison Table

Parameter of ComparisonTradingMutual Funds
DefinitionTrading is the activity of purchasing shares in the share market at the start of the day and selling by the end of the day.Mutual funds are an investment instrument for retail investors who don’t know the share market.
ManagerThe person himself will do the intraday trading in the stock market.The mutual fund company hires a fund manager for the management of the portfolio of shares.
StrategyThe idea is to buy and sell in stocks with large volumes and more price fluctuations.The idea is to invest in shares with good fundamentals for the long term.
RiskThe trader is willing to make losses in his/her intraday trade on many days.The mutual fund investor is adding his monthly savings into the share market via mutual funds for the long term. Long-term investment results in less risk.
AccountTrading can be done by opening a share market account with a stockbroker.Mutual funds can be purchased directly on the mutual fund company’s website or via a mutual fund broker.


What is Trading?

Trading is a way to earn money from the stock market by choosing a stock at the start of the day and selling it by the end of the day. The trader will earn money due to the fluctuation in the price of a stock.

The stock markets also allow traders to sell a stock at the start of the day and buy it by the end of the day.

Usually, trading is done in stocks that have large volumes of trade during the day. When there are a lot of people purchasing and selling a stock, then the stock is bound to have a lot of price fluctuations.

The trader will smartly choose a stock based on current news and a company’s financial situation.

There are TV channels that give days on which stocks to pick up before the stock market opens. Even during the day, TV channels will advise on whether to carry forward trading investment to the next day or not.


What is Mutual Fund?

A mutual fund is a collection of shares that are purchased by the company after collecting money from the public. This means that, ultimately, a lot of people are collectively purchasing a portfolio of shares in the stock market.

The mutual fund company will hire a fund manager who will see the fund’s daily operations.  He will use his analytical skills to decide which share to buy and which one to sell

The benefit for the customer here is that he does not need to track the market daily or weekly basis. The benefit for the mutual fund company is that they take a commission cut from the investment done by the customer.

Every country has a central agency to regulate the operation of mutual fund companies.  The regulatory agency will lay down the rules that have to be followed by mutual fund companies. 

Most mutual funds allow investments to be made as a lump sum or every month. The Investments made on a monthly basis are known as a systematic investment plan.

Even legendary people like Warren Buffet consider systematic Investments a fantastic way to invest money in the stock market.

mutual fund

Main Differences Between Trading and Mutual Funds

  1. The trading of stocks is done by purchasing and selling the stock on the same day.  Mutual fund investments are made for the long term to earn money when a company does well during the financial year.
  2. The traders will purchase hundreds and thousands of shares of a particular stock and sell them immediately when they see a price fluctuation. The idea of trading is to earn money from price fluctuations daily. Mutual fund investors can invest a small amount of their savings in the mutual fund and hence can participate in the stock market.
  3. The trading session is handled by the individual himself, whereas the investment in mutual funds is handled by a fund Manager, which the mutual fund company hires.
  4. There is more risk in the case of trading and less risk in the case of mutual funds. This is because stroke can change its price based on particular news during the day, whereas the stocks are bound to perform well speed of time as their earnings improve.
  5. To trade in the stock market, you need to open an account with a stockbroker.  To participate in the mutual fund, you need to open an account with the company.
Difference Between Trading and Mutual Fund
  1. https://pubs.aeaweb.org/doi/pdf/10.1257/000282806777211892
  2. https://www.nber.org/papers/w7855.pdf
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