Mutual Funds or Direct Stocks: Which to Choose

There are numerous ways to grow one’s money. Both Mutual funds and stocks are popular investment methods but are quite different from one another and have several notable features, advantages and disadvantages. It is imperative for investors to weigh all these parameters, before investing their hard-earned money.

PARAMETERS	MUTUAL FUNDS	STOCKS
Ownership rights	Investors have no ownership rights.	Investors do have ownership rights and can take decisions.
Investment amount	The minimum investment amount is Rs 100 and there is no maximum amount limit.	The minimum investment amount starts from Rs 30 and there is no maximum limit.
Investment type	Indirect	Direct
Trading time span	Mutual funds are traded once in a day.	Stocks are traded throughout the day.
Risk	Comparatively less risky than stocks.	Comparatively riskier than stocks.
Costs	Annual Management fees are required in case of mutual funds.	Brokerage fees are required in case of stocks.
Diversification	A mutual fund portfolio usually has a combination of various stocks, bonds, commodities and cash. Hence, by nature Mutual Funds are diverse.	The stock of a company does not have diversifying features.
Management	Mutual funds are managed by professional fund managers. Therefore, it does not require continuous monitoring by the investor.	Stocks are managed by their own investors. Therefore, it requires continuous monitoring.
DEMAT Account	There is no need for a DEMAT account.	DEMAT account is needed.
Value	Net Asset Value (NAV) is the value.	The price per share is the value.
Stock selection	Investors do not have control on picking and holding of stocks.	Investors have more control on stock selection and investment.
Liquidity	High and can be redeemed on the same day.	It requires a minimum time period of 3 days.

Mutual Funds Vs Stocks- Which Is Better for You ?

There are several factors that you must consider before investing in any of the two investment avenues. The most important factor is age. In terms of risk exposure, then Mutual funds do offer a redundancy and growth due to diversification. Stocks, on the other hand, are relatively riskier and offer high returns on investment.From the point of view of control, investing in stocks allows maximum freedom. Mutual funds are managed by professional fund managers. If saving taxes is your area of concern, then investing in long term stocks is preferable. Mutual funds, on the other hand, are taxable. You will have to pay capital gain taxes irrespective of whether the market is plummeting or rising.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.