Difference Between Stock Index and Mutual Fund is two fold. Mutual Fund Vs Stock Index tend to live in the same bowl. To be honest, it would be a very bad thing to draw differences between a Stock Index and Mutual Fund. Its more like comparing a Cow with a Flock of Sheet. However, We will explain both the terms in laymen terms and by the end of the Article, you will be able to understand Stock Index Vs Mutual Fund differences.
Stock Index & Mutual Fund Definitions
Below we will explain both these terms separately.
As per Wikipedia, “A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average)”.
This means, To measure performance of overall share markets in India, We need not consider the share values of all listed companies. We choose only few selected Stocks and measure their performance. We believe that the performance of this selected stocks can tell the overall performance of the entire stock markets.
A Mutual fund on the other hand, is an investment security type that enables large number of investors to pool their money together into one professionally managed investment. A fund manager buys stocks (bonds if it is a debt fund and both if its a hybrid fund) and builds up a portfolio. This portfolio is the mutual fund.
Key Differences between Stock Index and Mutual Fund
The differences between these two terms are explained in the following table.
|Difference||Stock Index||Mutual Fund|
|Who Maintain It||A Stock Index is maintained by a Stock Exchange. For example, Sensex is a Stock Index maintained by Bombay Stock Exchange, India||A Mutual Fund is maintained by a Fund Manager. For example, Citi Bank is a Fund Manager who maintains a Mutual Fund containing stocks.|
|Number of Stocks in Index||An Index will have only a fixed number of stocks. For Example, Sensex have 30 Stocks (Shares of 30 leading companies)||A Mutual Fund can have any number of Stocks.|
|Fund Comprise||An Index Fund typically comprises of only Shares||A Mutual fund comprises of Shares, bonds etc|
|Favoured By||Warren Buffett||Peter Lynch|
Mutual Funds are very popular among the shareholders for their conservative approach. Mutual funds are very less risky compared to Index Funds, but earn only a limited return. As a famous saying goes ‘Fortune favours the brave’, if you want to get rich quick, go for a Stock Index.