Mutual funds vs individual stocks: advantages of diversification


A mutual fund in Singapore is an investment where a group of investors combine their money to buy a collection of stocks, bonds, and other securities. It allows individuals to invest in a wide range of assets without purchasing each individually. Mutual funds are professionally managed by investment advisors who determine the selection and timing of investments based on pre-determined objectives.

On the other hand, individual stocks are priced based on supply and demand in the Asian stock market. An individual investor purchases a portion of the equity in one company at a specific price to sell it for the same or perhaps even more than what was paid. While there is potential to make higher returns from investing in individual stocks than mutual funds, they also come with greater risk due to a lack of diversification.

Mutual funds and individual stocks are two of the most popular investment forms. Both offer investors the potential to earn returns on their investments. There are several distinctions between them.

Advantages and disadvantages of mutual funds and individual stocks

One key advantage of mutual funds over individual stocks is diversification. When investing in a mutual fund in Singapore, investors can purchase hundreds or even thousands of different securities, reducing their risk as no single stock’s performance can significantly impact the overall returns generated by the fund. It gives investors more excellent stability than investing solely in individual stocks, as one bad investment does not ruin their entire portfolio.

Additionally, mutual funds are managed by experts who ensure the portfolio is well-balanced and diversified to minimise potential risks. It ensures that the fund can likely capitalise on short-term and long-term market movements while limiting the chance of seeing significant losses due to a single stock’s performance.

Mutual funds are often much easier to access than individual stocks as they can be purchased in small amounts through brokerages. Investors can start these investments without large sums of money. Additionally, mutual funds provide greater liquidity than individual stocks, as the underlying securities can typically be sold quickly without additional fees or costs.

Regarding taxation, investing in mutual funds may also be advantageous as certain types of income generated by these investments may be tax-advantaged. It means that investors may pay less taxes than they would if they had instead invested in individual stocks, leaving more of their profits to be reinvested or used for other financial purposes.

The benefits of using a broker when investing in mutual funds or individual stocks

Using a broker when investing in mutual funds or individual stocks can be beneficial for many reasons. Firstly, brokers have access to up-to-date information about the markets and can provide valuable advice on which investments are likely to perform well. Investors in Singapore can make informed decisions based on their goals and risk tolerance.

Brokers also offer various services that help investors manage their portfolios more effectively. For example, they may provide portfolio rebalancing services so that investors don’t need to constantly monitor the performance of their investments. It ensures that portfolios remain diversified and balanced over time, reducing the chance of suffering significant losses due to an individual stock’s performance.

Additionally, brokers often offer tax optimisation strategies to help reduce taxes owed from investment income generated by mutual funds or individual stocks. They may advise how best to structure investments to maximise returns while minimising risks associated with taxation rules such as wash sales or short-term capital gains taxes.

Using a broker like the Saxo Bank Group when investing is cost-effective, as they have minimal transaction fees and offer competitive price structures. Furthermore, these fees are usually lower than that financial advisor’s charge, who typically require a sizeable minimum account balance to work with investors.


While both individual stocks and mutual funds can offer potential returns for investors, mutual funds offer additional advantages such as diversification, liquidity and tax benefits that make them a more attractive investment option for some. Additionally, using a broker when investing in either of these asset classes can be beneficial as brokers provide access to up-to-date information and services that help investors manage their portfolios more effectively. Ultimately, individual stocks or mutual funds should be based on an investor’s financial objectives and risk tolerance.


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