Stock Market Vs Mutual Funds: Which one to prefer?

Investing in stock market requires a great deal of acumen provided you have immense patience, time and required financial expertise to do so. Stocks, in general, refers to shares or equity stock when you start investing in the share market. But be prepared to lose the ball in the game when it comes to major fluctuations from the stock market as the risk is ‘very high’. So, are you ready for the risk that calls off your initial investment you have deployed in the market? Of course not. It’s better to shift your focus on another investment avenue that spreads out the risk proportionally in delivering you the better returns as against losing your entire money in one second. Wondering what the other avenue is? Yes, it is Mutual Funds. As mutual fund is one such avenue where your money gets allocated to a wide spectrum of stocks chosen by an expert. This expert brings forward own expertise in collecting the stocks on your behalf backed by a thorough research from an empanelled team of research advisors.

Several investors refer to stock market as ‘equities’ and fear the risk of losing out their money which in turn makes them stay away from taking further steps ahead. But in mutual funds, things are different? It is the diversification that plays a major role in balancing your risk with the returns you generate from the fund. Let’s find out the top 5 Mutual Funds and top 5 stocks in its respective categories:

Top 5 Mutual Funds in India

Source :

Top 5 Stocks in India

Name of Security3-years Returns (%)
ITC 15.60
Bharti Airtel15.37
M&M(Mahindra & Mahindra)11.94
LML Ltd.7.83
Axis Bank6.61

Source :

In order to reap better risk-reward ratio in the long term, make yourself well informed about the clear differentiation between the stock market and mutual funds when you go for investing.

  1. Professional Management: Mutual Funds offer the expertise of a dedicated fund manager that aims to achieve the investment objective of the scheme. On the other hand, while investing in stock market, individuals need to possess the desired skills for identifying the right stocks.
  1. Low Ticket Size: Some shares have a high share value not affordable by small investors. However, in mutual funds, one can invest in a variety of stocks with a minimum investment as low as ₹500.
  1. Fees & Expenses: Mutual Funds charge fees and expenses capped under the stipulated regulations whereas for trading in equities one would require paying Demat charges along with trading charges.
  1. Liquidity : Open-ended funds permit the investors exit at the current NAV subject to exit loads whereas investing in stock markets don’t always give a guarantee to investors whether they will be trading in the market at fair value.
  1. Risk Management: An investor gets carried away with sentiments while picking up the stocks and sometimes, may go overboard with a specific stock. However, a fund manager has risk management guidelines working in place while collecting stocks. There is a limit on how much investment can be made in each stock at every sector. Also, the fund manager’s decision of investment is always backed by a strong research team with years of experience.
  1. Choice of Funds: Investors prefer investing in a scheme that matches their investment needs. For example: an aggressive investor may prefer investing in a diversified equity mutual fund where less aggressive ones may prefer investing in a balanced fund.

In short, the stock market is like a casino where you have to count your own fortune to bring the luck for you. On the other hand, mutual funds give you assured returns provided you set the timing right for yourself to stay within the fund in proportion to your financial objectives which you wish to seek from the fund.

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As mutual funds work in bringing out the effective returns only on three conditions- your financial goal, timing and risk-taking aptitude.

These three parameters balance your worthiness to derive more money from the haven of Mutual Funds.

Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.

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