Stock Market vs Mutual Funds: Which option will give MASSIVE returns on your equity investment? Check experts' view

Stock Market vs Mutual Funds: While investing in the stock market or in mutual funds, people belive that they are investing in equities, which is partially correct and partially wrong. Stock market investment is direct equity investment where investors decide which shares to buy and which share to sell while in equity mutual funds, it is fund managers who decide which shares would give better returns. Hence, equity mutual funds are passive equity investments. But, when it comes to returns, a mutual fund investor expects more returns than the stock market because a mutual fund manager is supposed to outperform markets by 2.5 per cent to around 4 per cent.

Highlighting the role of a fund manager in equity mutual fund investments Kartik Jhaveri, Director — Asset Management at Transcend Consultants said, "In equity mutual funds, it's the fund manager who decides the investment destination. So, the performance of an equity mutual fund is dependent on the fund manager as entire investment-related decisions aree taken by the fund managers not the investor." On how much a fund manager can play a role in mutual funds return Jhaveri said that generally a mutual fund manager is expected to outperform the markets. This outperformance can be from near 2.5 per cent to 4 per cent as well. However, in some cases, it has been found that fund managers have managed to outperform the markets by more than 5 per cent.

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Speaking on the difference between the stock market and mutual fund investments Amit Kukreja, Founder at amitkukreja.com said, "Stock market investments are active equity investments while mutual funds are passive equity investments. In the stock market, an investor chooses one's shares to buy while in mutual funds, it's fund managers who decided which stock to buy and which stock to sell. In fact, in mutual fund investments, it's fund manger's job to make equity investments on behalf of the mutual fund investor and outperform the stock market returns while in the stock market, it's completely an investor's choice as to which shares to buy and which shares to sell."

On comparative risk factors involved in share market and mutual fund investments, Kukreja said that in the stock market, an investor has to make his or her choice on its own while in mutual fund investments, there is a fund manager who helps an investor to make money from one's money. Hence, for a stock market investor, an investor has to be more mature and should have a better risk appetite in comparison to a mutual fund investor.

"Stock market investments are more risk-oriented than mutual fund investments because, in the share market, it's the decision of the investor that counts. Therefore, stock market investments are not for the new investor. A new investor should start investments from mutual funds, especially from debt mutual funds and later on, he or she should diversify one's mutual funds investment in large-cap, multi-cap, mid-cap, small-cap, and other mutual funds category." Kukreja said that while investing in mutual funds, one would understand the value of risk appetite and the importance of standard deviation and when an investor is able to understand this standard deviation, he or she should know that one is ready for investment in the stock market.