STOCKS | EQUITY MUTUAL FUNDS | |
Approach | You can buy shares of the company directly from the stock market by way of either an IPO or in the secondary market from other investors based on your knowledge and understanding of the company. | Mutual fund is pooled investment strategy, which pools money from various investors and invest in a pool of different stocks based on the wisdom and knowledge of expert fund managers. |
Management Expertise | Direct Stock investments requires high level of ability and knowledge. Not every investor possesses the required abilities to discover the best stock hence the chances of making wrong choice is high. | Mutual fund is operated by professional Fund managers. They conduct thorough analysis of economic, fundamental, sector and industry dynamics to choose the right stock. They choose companies not just on earning potential and future growth but also on their management and governance. |
Suitability | Seasoned investors with sound market knowledge who can do research on their own should directly invest in stock market. | Both new and seasoned investors who either do not have a sound market knowledge or a time to do research can benefit from the Equity Mutual funds |
Risk | Direct Stock investment is riskier as risk management standards are being followed by handpicked investors | Mutual fund act in accordance with proper Risk management standards. The fund manager has to follow the set process of investing. Fund manager is not permitted to invest excessively in a single stock. |
Volatility | Individual stocks have higher level of volatility, each stock's value may rise or fall dramatically in a short period of time resulting in an impulsive decision from the investors which may lead to losses. | Mutual fund on other hand has a broader portfolio of stable stocks. The buying and selling decisions are process driven and handled by an expert as a result Mutual funds are comparatively less volatile and hence chances of impulsive decisions are ruled out. |
Returns | Equity stocks have the potential to get investors high return even over a shorter period of time if invested wisely but investing in stocks can be tricky if decision goes wrong investor can suffer heavy losses as well. Example Rs 20000 invested in HDFC Ltd in 2002 is now Rs 57 lakh after 20 years which is a compounding annual return of 32%. | Mutual funds offer a decent return in long run but investor is worry free as investment decisions are taken by experts. Example Rs 20000 invested in HDFC Flexi cap fund is valued at Rs 10.5 lakh after 20 years which is a compounding annual return of 22%. The probability of getting consistent and decent return is very high with Mutual fund. |
Diversification | Diversification is the key element to reduce risk in equity investments, in direct stock investment to have a well-diversified stock portfolio you require a really large capital. | Mutual fund itself is a well-diversified portfolio of stocks. Mutual fund investor can get this benefit of diversification even with a small amount |
Convenience | Direct stock investments require continuous monitoring of one's investment owning to volatility in stock price. Difficult to maintain discipline in regular investing as well as withdrawal as you have to do every transaction personally | Mutual Fund is a convenient way of investment as professional fund manager manages the fund portfolio. You can maintain discipline in regular investing and withdrawal as M.F. offers mandate facilities like SIP, SWP and STP. |
Taxation | Short term Gain Tax is 15%, Long term Gain Tax is 10% over a threshold of Rs 1 lakh. | Short term Gain Tax is 15%, Long term Gain Tax is 10% over a threshold of Rs 1 lakh. Furthermore, investors who invest in ELSS M.F. gets the benefit of section 80C up to Rs 1.5 lakh. |
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