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Mutual funds or stocks: Which is a better investment?

The Indian mutual fund industry has witnessed a growth in retail investor interest, with the value of assets held by retail investors increasing by 9.3% to reach Rs 23.4 lakh crore in January this year, according to data from the Association of Mutual Funds in India (AMFI).

Inflows in the mutual fund industry reached the highest level in three years, surpassing Rs 1.21 lakh crore in the first month of FY24. 

Recent data indicates that mutual funds have become a popular investment avenue, with 31% of Indians investing in mutual funds, while only 10% are investing in shares as of 2022.

But here’s the million-dollar question: Should you dive into the stock market with individual stocks or opt for the comfort of mutual funds? Let’s dive into the ring and find out!

Stocks vs. Mutual funds: The great investment showdown

Mutual funds and stocks are two ways to invest in securities. 

Mutual funds pool money from multiple investors and spread them across different avenues. Professional money managers handle these funds and allocate investments according to designated objectives. Investing in a mutual fund means purchasing a portion of a diversified portfolio.

Stocks represent ownership in a company, and their value fluctuates based on market influences and company performance. Stocks offer a greater chance for higher returns but come with more risk. 

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Stocks vs. Mutual funds: The battle of pros and cons

Investing in the stock market can be an exciting and potentially lucrative venture. However, it’s important to weigh the pros and cons before diving in. 

Mutual funds: The power of Many

Positives of mutual funds 

  • Diversification benefits: Mutual funds offer the advantage of diversification, reducing risk.
  • Stable returns: Mutual funds aim to deliver consistent and stable returns over time.
  • Risk management: Investing in mutual funds involves risk management, providing a level of security.
  • Research handled by professionals: Fund managers take care of research and investment decisions, saving you time and effort.
  • No need for constant monitoring: Mutual funds do not require continuous monitoring, allowing for a more hands-off approach.
  • Promotes investment discipline: Mutual funds encourage disciplined investing habits.
  • Can be low cost: Passively managed index funds, in particular, can be cost-effective, with low expense ratios and trading fees.

Negatives of mutual funds

  • Expense ratio: Mutual funds generally have higher expense ratios than buying individual stocks, affecting overall returns.
  • Liquidity concerns: Some mutual funds may lack liquidity compared to stocks, potentially limiting your ability to access your investment quickly.
  • Entry or exit loads: Certain mutual funds impose fees when buying or selling shares, reducing investment returns.
  • No possession of underlying assets: Investors only hold mutual fund units without direct ownership of the underlying assets.
  • Trading limitations: Mutual funds can only be traded at the Net Asset Value (NAV) price at the end of the day, unlike stocks that offer real-time trading opportunities.
  • Market underperformance: Actively managed funds may not perform as well as the overall market, potentially resulting in losses.

Stocks: Riding the rollercoaster

Positives of stocks 

  • Easy to trade: Trading individual stocks is a breeze with online brokers and user-friendly apps.
  • Potential for large gains: Stocks have the power to deliver substantial profits and increase your wealth.
  • Low trading costs: Many brokerages offer free trading for individual stocks, keeping costs low.
  • Suitable for short-term and intraday trading: Stocks are ideal for both short-term and intraday trading strategies.
  • Complete control over decision-making: Investing in stocks allows you to have full control over your investment decisions.

Read Also: Everything you need to know about ELSS mutual funds

Negatives of stocks

  • Inherent volatility and risk: Stock markets are naturally volatile, making them highly risky investment options.
  • Prone to market cycles and corrections: Stocks are sensitive to various factors, including political events and global markets.
  • Requires expertise and study: Investing in stocks successfully requires extensive knowledge and experience. Otherwise, it carries higher risk and can lead to speculative trading.
  • Difficulties during market downturns: Individuals may struggle to navigate market downtrends effectively, potentially impacting their investments negatively.
  • Concentration risk: Holding a bad stock for too long can significantly erode your wealth if not timed correctly.
  • Potential for large losses: The flip side of potential gains is the risk of significant losses if stock prices plummet and fail to recover.

Bottom line

Now that you’ve witnessed the fierce battle between stocks and mutual funds, it’s time to declare a winner. But wait! No one-size-fits-all. The right choice depends on your financial goals, risk tolerance, and time commitment. Here are some key takeaways to guide you:

  • If you crave excitement, have the time and expertise for research, and don’t mind the ups and downs, individual stocks might be your ticket to thrill and potential riches.
  • If you prefer a more balanced and hands-off approach, want diversification, and value professional management, mutual funds can be your faithful companions on the financial journey.


Is money safe in mutual funds?

Money is relatively safer in mutual funds, given the feature of diversification. Mutual funds also involve fund managers with special knowledge of the stock market. Hence, investments usually go to profitable avenues. However, it still involves trading in the financial markets which comes with a certain degree of risk attached.

What are the 3 main groups of mutual funds?

Mutual funds have different categories. The 3 main categories are stocks, debts and money market instruments. A portion of the pooled fund goes to these different asset classes to offer investors a diverse portfolio with different risk-return ratios.

What is SIP in mutual funds?

SIP stands for Systematic Investment Planning. Mutual funds allow investors to invest in lumpsum, i.e., one-shot investment, or through SIP where a small amount is invested at periodic intervals. Investors choose SIP as it does not burden them and develops the habit of saving.

Which is more profitable – Shares or mutual funds?

While investing directly in stocks offers quick short-term gains, investing in mutual funds for the long term can be safe and profitable. Stocks offer high profits but also expose investors to high degrees of risk and uncertainty.

Is stock SIP a good idea?

Stock SIPs are similar to Mutual fund SIPs. But, instead of investing with an asset management company and having a fund manager, stock SIP is a DIY practice where investors manage their own funds. This is suitable for those who want to start small and be actively involved in managing their investments.

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