ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Mutual funds tend to be less risky than individual stocks, because they are more diversified-meaning they contain a mix of investments.

Detailed explanation-2: -The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund. This type of risk is known as unsystematic risk. Unsystematic risk is risk that can be diversified against.

Detailed explanation-3: -Stocks represent shares in individual companies while mutual funds can include hundreds-or even thousands-of stocks, bonds or other assets. You don’t have to choose one or the other, though. Mutual funds and stocks can both be used in a portfolio to help you grow your wealth and meet your financial goals.

Detailed explanation-4: -Mutual Fund Schemes are not guaranteed or assured return products. Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.

Detailed explanation-5: -Investing in stocks is a risky proposition, even if you hold a variety of stocks in various industries. But putting all of your investment resources into a single stock is far riskier, as the value of a single share will tend to swing far more wildly than the values of stock in a diversified portfolio.