Mutual funds vs direct equity: Which investment option should you prefer in 2021?

Updated : January 02, 2021 11:13 AM IST

Though both the investments are done in equities, the risk associated differs.

Mutual fund scheme or direct equity? Well, though both the investments are done in equities, the risk associated differs.

Stock or direct equity investments give investors greater flexibility to invest in companies they believe in and know. It involves a high risk but is a high-reward investment option.

Mutual funds, on the other hand, come with diversification opportunities which helps when the markets are volatile. Investing in mutual funds via SIPs allows investors to gain from price movements and frees them from timing the markets.

Also read: Here's a list of top-performing equity mutual funds of 2020

If we look at the data of the current calendar year, as Gopal Kavalireddi, Head of Research, FYERS explains, the total number of Demat accounts increased from 39.6 million to 47.6 million between January to October. The monthly average of new accounts opened has, meanwhile, stayed above the 1 million-mark consistently for the last 5 months.

During the same period, Kavalireddi adds that mutual fund folios have also increased from 8.71 crore by the start of January 2020 to 9.37 crore by end of October 2020. Net new SIPs registered are clocking in 3.3 lakh on a monthly basis for the calendar year.

This shows that investors have accepted the enhanced risk of equities and are investing in direct equities as well as through mutual funds.

However, the question still exists -- which investment is better?

According to Harsh Jain, CEO, Groww, it is actually difficult to predict a winner between mutual funds and stocks. Both the investment products are dependent on the performance of the economy, sectors and individual companies.

“So, ultimately, it's the investor who wins,” Jain says.

Whether one goes for mutual funds or stocks or a combination of both, the key lies in investing as per the investment profile.

At Groww investment platform, Jain says they have seen that there is a strong synergy between mutual funds and stocks.

Also read: Looking to invest in 2021? Here are the best investment options

“Most investors diversify across both the products. They start SIPs in two or three well-performing mutual funds, pick a few stocks that they understand, and invest for the long term. In fact of all stock investors onboarded, about 40 percent of the users are also investing in mutual funds,” Jain explains.

As investment options, stocks and mutual funds have their pros and cons. The efficacy of these options depends on the type of investor and investment needs.

"Each investor is unique and needs to find the right combination of investment avenues to ensure that the financial goals are met with minimal exposure to risks," Jain suggests.

Mutual funds, as experts advise, must be the preferred option for first-time investors as these are professionally managed by fund managers. Investing in direct equity, meanwhile, should be opted by people who want a greater degree of freedom in creating their own portfolios and have sufficient knowledge about stocks.

However, the bottom line is whether one goes for mutual funds or stocks or a combination of both, the key lies in sticking with the investment plan.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

Mutual funds vs direct equity: Which investment option should you prefer in 2021?

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