Investing in Stocks vs. Mutual Funds? Which One Should You Choose?

In the previous year, more than one crore demat accounts were opened. Indians are once again interested in shares, as stock markets are back to all-time highs. However, if you are a first-time investor, is it advisable to directly invest in equities?

Companies issue equities, and they give you part ownership. The returns can be either through dividends or capital appreciation. You also get voting rights, allowing you to participate in corporate decisions.

In comparison, mutual funds (MFs) pool money from several investors. This corpus is then invested in different assets like equity, debt, government securities, and other instruments based on the fund’s objectives.

Stocks vs. mutual funds

We have compared these products based on:

1. Diversification

One way to mitigate investment risk is to diversify your portfolio across various asset classes. MFs provide in-built diversification, as equity funds cannot take more than 10% exposure in a particular stock. If you invest in stocks, diversification is limited to a few stocks.

2. Professional management

Mutual funds in India are controlled by experienced fund managers. They are supported by a knowledgeable team of researchers and analysts. However, in stocks. you will have to spend time researching different companies and analyzing the markets. You may not have the time or the understanding to carry in-depth research.

3. Costs

The large volume of buying and selling stocks provides MFs economies of scale. This benefit improves your returns on investments. Conversely, if you buy direct equities, you will have to incur multiple expenses, such as brokerage fees, transaction charges, Securities Transaction Tax (STT), and Goods and Services Tax (GST), which can reduce your returns.

4. Investment discipline

Regular investments are important to build wealth over the long term. MFs allow you to invest a certain amount at periodic intervals via Systematic Investment Plans (SIPs). Moreover, you can invest as low as INR 500 in these plans. Although you can invest frequently in stocks, the amount may vary depending on the share price.

5. Multiple options

You can choose from different types of MF schemes, such as equity, debt, and balanced, among others based on your financial goals and risk appetite. If you invest in equities, you can only invest in company stocks. Although there are thousands of listed companies, the number of investible shares is limited.

Here is a summary of the stock vs. mutual fund online investing:

With this comparison, it is evident that MFs have an edge over stocks. So, explore the SIP calculator on Mahindra Finance’s website and start investing.