Mutual Funds vs Shares – Which is Better for You?

Mutual Funds vs Shares – Which is Better for You?

One common thought that comes to every mutual fund investor is that he should start investing in shares because some Individual stocks have given 10x times better returns than his mutual funds. So they think it makes more sense to invest in direct stocks than mutual funds because stocks give better returns. So Mutual Funds vs Shares which is better for you?

The answer is it depends on what type of investor you are and what is your risk appetite. To Decide on Mutual Funds vs Shares you need to first understand difference, risk and returns of both, after that we will be in a position to decide which is best for you.

Difference Between Mutual Funds and Shares

Mutual Funds in Simple Terms can be understood as a pool of money, where many people come together and Invest a Certain Amount of money, the Money is then Collectively Invested and Profit made is distributed Among its Investors. Mutual Fund is managed by the fund manager & promoted by its fund house.

You can read What are Mutual Funds? Mutual Funds for Beginners for an in-depth understanding of mutual funds.

Stock Market is a market where buyers and sellers come together to trade stocks i.e. shares of companies. Stock markets are similar to every market we see in our daily life, like the fruit & market, gold markets, cloth markets etc. The only difference is that in stock markets people come together to trade shares.

You can also read What Is the Stock Market and How Does It Work? for a better understanding of Stock Markets.

Risks of Mutual Funds and Shares

Mutual Funds are less risky as they invest in a group of stocks. Diversification in Mutual funds makes it less risky for you as the investment is made in several stocks, even if 1-2 stocks go down other well-performing companies average for the same and in the end, you make good returns due to diversification. So to Conclude Mutual Funds are less risky as compared to shares.

While Investing in shares you invest in the stock of one company, so your risks are related to only one stock. If that one stock performs well you make money and if that does not performs you lose money. Direct Investing in shares lacks diversification and hence it makes a riskier investment.

Returns of Mutual Funds and Shares

Average Returns of Various Types of Mutual Funds for Last 5 Years are as follows –

  • Large Cap Funds – 9.86%
  • Mid Cap Funds – 13.47%
  • Small-Cap Funds – 7.66%

Source – Value Research Online

Mutual Funds vs Shares - Last 10 Years Returns

Source – Business Today

Returns of Top 10 Stocks for the last 5 years have ranged from 146% p.a. to 111% p.a. Stock Indexes like Nifty50 and Sensex have given an average of 12% p.a. returns to its investors.

From this comparison, we can say that stocks have given better returns to its investors. But there is a twist here, there are more than 5000 Stocks listed on NSE and we have compared only top 10 performing stocks. Then the question arises what about other stocks? What are their returns in last 5 Years? Let us check out some of their returns for the last 5 years as well

  • PC Jewellers = (-77%) in 5 Years
  • Vakrangee = (-34%) in 5 Years
  • VIP Industries = 306% in 5 Years
  • Info Edge = 202% in 5 Years
  • Jubilant FoodWorks Ltd = 133% in 5 Years
  • Oberoi Realty Ltd. = 80% in 5 Years
  • Wipro Ltd = 20% in 5 Years
  • Hindustan Unilever Ltd = 160% in 5 Years
  • Reliance Industries Ltd = 247% in 5 Years

For Diversification purposes, we have picked 3 Stocks from Small Cap Range (PC Jewellers, Vakrangee and VIP), 3 from Mid Cap Sectors (Info Edge, Oberoi and Jubilant) and 3 Stocks from Large Cap Sector (Wipro, HUL and Reliance)

As we can see the return range of these 9 stocks is from -77% to 306% for the last 5 years. Returns from Stock Markets are really inconsistent and few stocks perform really well, while on the other hand, some struggle to generate even positive returns.


After looking at differences, risk and returns of mutual funds and shares we are in a position to conclude Mutual funds vs Shares which is better for you.

Who Should Invest in Mutual Funds?

Investors who don’t have time to research markets and spend time in front of computer screens looking at charts and data should invest in Mutual Funds. Investors who have less risk appetite which means they don’t want to take a lot of risks and want to generate better inflation-beating returns than FD’s should invest in mutual funds.

As we saw average returns for mutual funds are between 9%-13% If you are looking for those returns with less risk should invest in mutual funds.

Smart Tip – Whenever Investing in Mutual Funds invest with SIP Mode of Investing & Always invest in Direct Plans. You can check the difference between Direct & Regular Plans and How to Switch from Regular to Direct Mutual Funds.

Who Should Invest in Shares?

Investors who have time on their hands for market research, for technical and fundamental Analysis, Reading Charts & RSI, Interpretation where stocks will go should invest in Stock Markets. Stock Markets Investors should also note that it can be highly risky to invest in stocks as returns are uncertain.

There are no average for Stocks but Direct Equity Investments always outclass each & every investment product in the long term.

Smart Tip – Whenever Investing in Equity Stocks invest in 4-5 Different Stocks from Different Sectors and Avoiding Investing Lumpsum at one time instead invest small sums periodically.

Also Investing in Shares required you to have a Demat account with a SEBI Registered Broker. We at Prate Markets Personally Use & Recommend Upstox. Upstox is a low-cost Discount Broking firm providing Trading & other Investment Related Services at an unbelievable price.

We have a detailed Upstox Demat Account Review & Step by Step Guide on How to Open Demat Account with Upstox for free

Now let us know where you will invest in Shares or Mutual Funds?

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