Mutual fund SIP accounts stood at 8.76 crore in May 2024 according to the Association of Mutual Funds in India (AMFI). A total of ₹20,904 crore was collected through mutual fund investments in the same month. These figures are indicative of the growing popularity of mutual funds in India. So, should you invest only in mutual funds instead of stocks? What are the differences between these two modes of investments? Know everything in this article.
Difference between mutual funds and stocks
- Mutual funds help you benefit from the expertise of fund managers: If you are a first-time investor, you can benefit from the experience of seasoned fund managers by investing in a mutual fund scheme.
- Stock picking does not offer many avenues of diversification: There is lesser scope of portfolio diversification if you only stick to picking stocks. Mutual fund investments offer more opportunities for diversification.
- Mutual fund investments are convenient as opposed to stock picking: Investing in a mutual fund scheme is extremely convenient. Efficient stock picking requires you to research a stock and perform several analyses, which is more time-consuming. However, as an investor, you have all the control while picking stocks. You do not get this control while investing in a mutual fund scheme since it is the fund manager who takes all the important decisions.
- Stock investments can outperform mutual funds: A key advantage of investing in stocks is their ability to outperform mutual funds. They pose a higher risk to the investor, but also offer higher returns.
Stepwise procedure to invest in the best mutual funds online
- Fix your investment objectives: You must first decide on an investment objective and horizon. This can help you determine the investment amount and can help with portfolio realignment in the future.
- Check the liquidity offered by the fund and its cost: Check the expense ratio charged by the fund and the liquidity that it offers. If you require higher liquidity, consider investing in a liquid fund.
- Analyse the fund’s management and past performance: You should read about the mutual fund’s management and assess its past performance before investing.
- Assess the tax benefits of investing in the fund: Check if the fund offers high, tax-adjusted returns within your investment horizon.
- Choose the SIP option and use a mutual fund calculator: Use an online mutual fund calculator to calculate your fund returns in the future. This can help you decide on whether the fund is suitable for you.
Mutual funds vs stocks: Which investment vehicle should you choose?
You must take this decision based on two metrics – your expertise in investing, and your investment objectives. If you are an expert who has been investing for a few years, stock investments could suit you. For first-time investors, however, mutual fund investments are a more convenient way to enter the market.
In conclusion, you must gauge your investment objectives and expertise in investing before opting for stock-picking over mutual fund investments. You can also use an online mutual fund calculator to know your returns in advance before investing in a mutual fund.
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