20 May 2022 | Edukatips

Make No Mistake! Here are 4 Differences Between Stocks and Mutual Funds

*Update : 1 Mar 2024

Mutual funds and stock investment are popular among investors across all segments. Some are still trying to understand these two types of investment. And not many know the key differences between the two. 

More and more people start to invest their money in mutual funds and stocks. However, prior to investing, it is a good idea to learn more about these two investments.

Are you looking into mutual funds or stock investment? Please have a look on the information below!

Differences Between Mutual Funds and Stock Investment

Know the key differences between mutual funds and stock investment prior to investing in these instruments. The differences are as follows:

1. Investment Diversification

A mutual fund is an investment vehicle consisting of various instruments. It means that if you invest in a mutual fund product in which one of the portfolio is affected by a certain condition, it won’t have a significant impact on your investment. For example, if you invest Rp100,000 in Mutual Funds, you can get a variety of investment products that are also directly diversified in various stocks across different sectors and issuers, treasury, bonds, deposits, etc. (depending on the type of Mutual Funds you own) and one of the investment instruments is affected by a certain condition, then the effect will be smaller than if it was an individual investment vehicle.

On the contrary, if you invest in stocks and an event occurs that affects the stock instrument, then your entire investment will be significantly affected. For example, if you invest Rp100,000 in shares of PT. XYZ at a price of Rp1,000/share and Rp100,000/lot, the you have 1 lot of XYZ shares in the mining sector. When an event occurs that affects the shares of PT. XYZ, then all your investments will be significantly affected.

2. Management

In stock investments, investors manage their own investment. They need to spend considerable time to monitor stock movements. To earn a good return, investors must understand how stock investment works. However, they can also ask brokers for advice and insights into playing the stock market. 

Unlike stocks, funds in a mutual fund will be managed by an investment manager. Investors need not to think about strategies and ways to manage their pooled funds. Investors rely on the investment manager to manage their portfolio wisely. This makes a mutual fund an alternative investment for those who have limited time and restricted knowledge in investment analysis.

3. Risk Level & Potential Return on Investment

The risk level and return potential are intrinsic to an investment instrument because they are two integral parts. You must be familiar with the term “high risk high return” which means the higher the risk, the greater the return. Their relationship can be seen as follows:

Investment Product

Money Market Funds

Fixed Income Funds

Balanced Funds

Equity Funds



Very Conservative





Return Potential


Medium Low


Relatively High


Product Diversification




Money Market Instruments (cash, deposits, bonds with maturity <1 year)

Bonds & Money Market Instruments

Stocks, Bonds, & Money Market Instruments

Stocks, Money Market Instruments


Unlike stocks, the risks and potential returns of mutual funds vary according to the type. This is because apart from having a high level of volatility such as equity funds, stock investment products are not diversified with other investment products. So when an event occurs affecting the stock market, it will cast a significant impact, be it positive or negative.

4. Taxes

As a law abiding citizen, we are not exempt from taxes including taxes on passive income such as investments. Taxation on investment instruments in a mutual fund product is paid by the investment manager, making a Mutual Fund is not included as tax objects. However, for stocks, the final tax rate is 0,1% of the sales value, and if you receive a dividend and then reinvest it, it is not subject to Final Income Tax. But, if it’s not reinvested, it is subject to a 10% of gross income (not deducted when dividends are paid) for individual investors.

That sums up the key differences between mutual funds and stocks that you need to know. Do you want to add mutual funds into your investment portfolio? First identify the investment risk profile that suits your preferences.

For those who are determined to start investing, come on, start trying Welma feature in myBCA application which is easy to buy and sell various types of Mutual Funds at competitive prices. So, you can chose an investment instrument that is more attuned to your financial goals!