Investing helps you secure your future financially. It helps you safeguard yourself from inflation and fulfill various goals, right from traveling to making a big purchase like a house. However, the success of your investment can depend on where you invest your money. If you are torn between the choice of investing in mutual funds or IPOs (Initial Public Offers), understanding each option can enable you to decide the best course of action.
What is the difference between mutual funds and IPOs?
|Points of difference||Mutual funds||IPO (Initial Public Offer)|
|Meaning||A mutual fund company pools money from different investors and invests this further in equities, bonds, and other money market instruments.||An Initial Public Offering is when a company offers its stocks for sale for the first time to institutional, retail, as well as individual investors. IPOs raise money from investors directly.|
|Purpose||A mutual fund aims to invest in underlying assets to generate more capital for the investors. These underlying assets are chosen as per the type of mutual fund and can differ for equity, debt, and hybrid mutual funds.||Companies may raise funds for different purposes like business expansion, loan repayment, etc.|
|Investment method||You can invest in mutual funds through two methods:|
You do not require a Demat account to invest in mutual funds.
|The IPO of a company is listed on the stock exchange and can be bought like any other share. You also require a Demat account to invest in an IPO.|
|Ownership||When you invest in mutual funds, a specific number of units are allocated to you. You can redeem these units to liquidate your investment at a later stage.||In the case of an IPO, you buy shares of a company and become a shareholder of the company.|
|Investment amount||Mutual funds do not have a price. A SIP can start from as low as Rs. 500, and you can invest as per your investment budget.||The issue price of an IPO is decided on the basis of the company’s value and the total number of shares at the time of listing.|
Which one should you choose?
IPOs may carry more risk, and their future performance cannot be ascertained. On the other hand, you can check the past performance and returns of mutual funds. Mutual funds can also be chosen depending on your risk appetite and investment goals. So, they may offer more options for different risk profiles. While there is no right or wrong choice here, you can make a decision based on your unique preference and goal.
To sum it up
These points of difference can help you decide where to invest your money. And, if you need more investment options, you can also browse through the Tata Capital Moneyfy app.