Comparative Analysis: Mutual Funds Versus Stocks

Mutual funds are guided investment tools, which can help an investor in buying stocks in the capital market. Based on an investor’s risk appetite and financial goals in the long run, a mutual fund extends various options.

Generally, mutual funds invest in two main asset classes: debt and equity. Some of the mutual funds are pure debt while others invest in equity. In addition, there are various other types of mutual funds that can be chosen as per the investment goal.

Any investment in mutual funds provides exposure to the equity market through a variety of shares or fixed-income instruments.

In addition, mutual funds also offer income tax benefits. For example, an investment in an equity-linked savings scheme (ELSS) can reduce the taxable income by about Rs 1.5 lakh under Section 80C of the Income-tax Act (ITA), 1961.

The performance of a mutual fund is subject to market volatility but tends to provide respectable returns. While being highly affordable, the average returns on long-term mutual funds investment could range from 12-14%.

Investing in stocks
As an investor in the capital market, when an individual buys stocks or equities, they are actually purchasing a small portion of a company or entity.

Generally, there are two methods to gain from stocks: value appreciation when the stock of a particular company rises in value and dividends.

The average per year return for an investor who holds to the investment in stocks for about 10 years has been hovering at about 14.2%. 

However, the returns on stocks remain unguaranteed and depend highly on the market conditions in terms of volatility. The returns for an investor in stocks are proportional to where in a market cycle they buy or when do they sell to register profits.