5 difference between stock & mutual funds Investing

When we say Equity, what comes to your mind – Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes under the category of Equity and they are good option for long-term investment and needs periodic review. There are some differences between stock investing and mutual fund investing that is done by a common man. It’s a good idea to know where they differ and in which situation they differ, so that one can take better investing decisions. Let’s look at the main differences


Stocks and Mutual Funds Difference


When you invest in a single stock or bunch of stocks (3-5 scrips), the change in it’s value is very high. On a given day it can be extremely volatile. It can give you 20% return and sometimes -10% loss also depending on the environment. This can be very exciting and at the same time very disheartening and gives you a feeling that you need to “act fast”. 

Mutual fund on the other hand is not that much volatile by nature, as the diversification is very large and at a time 50-100 stocks are covered. Different kinds of stocks from different sectors and market capitalization are involved in mutual fund and the over all change in value is thus less volatile (other than extreme days).

Return Potential

This is very much in line with the above point but still let’s look at it separately. There are lot of success stories where someone got quick rich by investing in equities directly and it can happen, but those are rare happenings and require lot of work and analysis, patience and belief in what you have picked. If you want superb returns in short time and you believe you can research well, you can go for stock investing directly but then risk is also more.

Mutual funds are known to deliver good returns (not in line with stocks, but still very good). So you can expect handsome returns from mutual funds but not unbelievable like stocks return. This is mainly because the money is diversified across different stocks (read ideas) and chances of all of them becoming a super success in short time is impossible.

Monitoring Required

Stock investing is a personal affair and you are doing it on your own the decision of what to sell and what to buy is on you. Even in case of long-term investing, you might have to keep an eye every quarter or yearly unless you have really spent some good time in picking the good stock. You need to also keep an eye on news and sector specific developments.

Monitoring in mutual funds is relatively low because the job of monitoring is anyways done by the fund manager who is paid SALARY to filter through the fluctuations. He constantly adds and removes the stocks from the portfolio. This can be a positive point, but sometimes it can be a negative point also if there is too much of churning.

SIP Investment

Mutual funds are known for possibility of SIP (monthly investment). SIP in mutual fund works and is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets.

However SIP in stocks do not work. Yes, some companies provide you the facility of SIP in stocks, but it’s a terrible concept. There is no diversification and SIP in a particular stock does not make sense because the risk is with single stock. A stock can be in a bad phase for years and decades, whereas in a mutual fund the bad performing stock is weeded out.

Asset Class Restriction

Stocks investing is restricted to Stocks only. You can choose a large cap stock, mid cap stock or small cap stock, but finally it will be equity asset class. However, mutual funds can invest in mix of asset classes. There are equity funds, debt funds, gold funds, Mix of Equity and debt also. To top up, even balanced funds are there which can adjust the asset allocation on its own, so in a way mutual funds are more superior in terms of features compared to a single or bunch or stocks.


Mutual Funds are actually collection of stocks only but just because it’s a group of stocks the characteristics are not very similar to that of stocks. You should be clear about all the points of difference and only after that you should decide whether to invest in Stocks directly or take the Mutual Fund route.

95 CommentsAdd Comment

  1. Soma Mukherjee

    I just heared about a new bond: “HUDCO Ltd tax free secured redeemable non convertible bonds”, is it really safe to invest in???? Could u plz give me any idea?

  2. Saurabh

    Hi manish…i want to invest my money, but very confused where to invest; stocks or mutual funds ? I am a salaried person with around 30k/month. So can u guide me which is safest place to invest; as a short term investment ?

  3. Nikunj

    If you are new, then you should go for mutual fund but if can analyse stocks then go for investment in stock market for long term in blue chip company, you will get handsome gain.

  4. Suresh Kr. Ray

    Dear Manish,
    I am a regular reader of your articles (Jagoivestor). As your web name is JAGOINVESOR, its really doing a great job in creating awareness among the common investors. Two months back I have stared investing in MF and Debts funds with the help of a certified FP. Being very new and not knowing ABC of Mf, I find your forum/articles very useful, informative, lucid and much relevant to our curiosity of knowing more on Mfs. I have been reading your forum/ articles for last 6-7 months and in spite of the fact that i am not a good communicator I cannot resist my temptation to acknowledge my feelings. Its really great and wonderful and please do keep writing towards making us (INDIANS) a SMART INVESTOR

  5. Nishi Kant Nirala

    For long term you can invest in Equity in following stocks for minimum 5years time frame. You will get handsome gain.
    1. Tata Motors
    3.Axis Bank
    7.Reliance Power
    9. JSW Steel

  6. debojyoti gupta roy

    sir, i am thinking to invest some amount monthly by SIP in SBI gold fund for my child education who is now 3 years old. please tell me whether i am taking correct decision? or suggest me the best option.

  7. Nishi Kant Nirala

    If you are new, then you should go for mutual fund but if can analyse stocks then go for investment in stock market for long term in blue chip company, you will get handsome gain.

  8. vivek

    This is a general query:
    Suppose i want to build say 50 Lakh in next 10 years by MF SIP by selecting say MF-A,MF-B, MF-C and i have invested for 5 years, in case after 5 years MF-A starts performing badly like Reliance Growth now and assume i have already invested around 8 Lakh in this fund, so i am forced to sell this fund in this case what should i do? how do i reinvest this amount? do i have to do SIP again with some other fund with 8 lakh amount? which will eventually affect my planned amount 50 Lakh as doing SIP again takes time also to get returns from new fund for remaining 5 years SIP reinvestment is difficult, Can you please let us know what is the strategy to follow in this case of scenorio?

    • Sridhar Venkataraman

      Performance of Mutual Funds depends on the fund management primarily. If IDFC Premier is doing too well, it is because of Ken Andrade. If HDFC funds are doing well, it is because of Prashant Jain.

      Looking at Reliance growth, it went downhill because of Madhu Kela moving out of the fund management quite a while back. (http://forbesindia.com/article/boardroom/why-madhu-kela-moved-out-of-reliance-mf/22172/1) My suggestion to you is to transition out of Reliance growth. There were definitely warning signs for that fund for some time (Value Research ratings went down from 5 to 3 gradually).

      There are multiple strategies how you can move the funds either in bulk (sell high and buy low) or gradually using SWPs and SIPs. Your risk tolerance and mileage may vary.

  9. Rakesh


    Very good compilation. I have been in investing in both stocks & MF for the quite sometime and have benefited from it. I feel many new investors fall trap to stocks with the lure of making quick money, instead they should start via SIP in MF and then do extensive research and invest in stocks.
    The statistics say that only 10% of people make money in stocks.

  10. Uttam Kumar Sen

    @Ravi you are correct, but still those investors can’t avoid inflation risk. As Manish asked 1 yr & 10 yrs risk is same? He wanted to mean that if the time horizon is 10 years the risk is very less. In modern portfolio theory the slogan is maximum return with minimum risk. We always consider the time horizon and the investor’s investment in different asset classes so far etc. Mutual fund is managed fund but stock is not. To beat inflation one has to invest a portion in equity depending on his/her risk appetite & time horizon. If you save one rupee, you save it for tomorrow and today’s money is valuable than tomorrow’s money, so let your money work for tomorrow!

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