Investing in mutual funds vs. stock market – which one to choose for higher returns?


Mutual funds and stocks can both offer significant benefits to investors. However, these two have some fundamental differences as they serve unique investment purposes. This article can help you pick the right option.

mutual funds vs. stock market

What is the difference between investing in mutual funds and the stock market?

Points of differenceMutual fundsStock market
RiskMutual funds may carry lower risk compared to the stock market. Mutual funds are diversified. So, your money is invested in different industries, sectors, and asset classes. This reduces risk and the chances of earning negative returns.The risk quotient is a lot higher in the stock market. While the chances of earning high profits are intensified here, so are the chances of making negative returns.
ManagementA fund manager manages mutual funds and makes all buying and selling decisions, monitoring the investments, etc. This can be great for passive investors who do not have the time or knowledge to make crucial investment decisions themselves.Investing in shares requires making all the buying and selling decisions yourself. This needs an intricate understanding of the stock market, knowing when to enter and exit the market at the right time, etc.
Diversification and budgetMutual funds offer the benefit of diversification. Even with some investment, you can get exposure to different stocks.You must invest in different stocks to diversify your portfolio in the stock market. This may seem like a massive investment and may not suit everyone’s budget.
Tax benefitsMutual funds offer tax benefits if you invest in equity-linked saving schemes or ELSS. You can claim a tax benefit of up to Rs. By investing in this scheme, By investing in this scheme, 1.5 lahks per annum under Section 80C of the Income Tax Act, 1961.There are no tax benefits of investing in the stock market.
Investment methodMutual funds offer two modes of investing:
  • Through a SIP: Under this, you can invest smaller sums of money at a fixed frequency and build a large corpus over time.
  • In a lump sum: Under this, you can make a one-time lump sum investment in a mutual fund scheme.
You can buy stocks in the stock market from your Demat account. As the name suggests, the stock market functions like any other market. The supplies you buy are reflected in your account, and the money is credited to you upon redemption. Moreover, there is no option to invest through a SIP.

Which one to choose?

Mutual funds can carry lower risk compared to stocks. So, if you want to avoid high risks, investing in them can be a better option. However, if you are open to risk and volatility, you can add some stocks to your investment portfolio and open the possibility of earning higher profits.

To sum it up

Irrespective of what you choose, make sure to understand the pros and cons of each option. Once you have decided, the Tata Capital Moneyfy app can help you manage all your investments easily and conveniently, even on the go.

Aly Jones
Twitter evangelist. Web fanatic. Lifelong travel nerd. Passionate zombie scholar. Extreme coffee fan. Amateur entrepreneur. Avid beer lover. Had moderate success lecturing about wieners in the UK. Won several awards for short selling clip-on ties in Hanford, CA. Uniquely-equipped for creating marketing channels for cod in Bethesda, MD. Spent a weekend buying and selling Easter candy in Phoenix, AZ. Was quite successful at analyzing tar in the government sector. Have a strong interest in getting to know barbie dolls for fun and profit.