Mutual Funds vs Stocks: Find Out Which Is Better

Mutual Funds vs Stocks:

Just like any other financial instrument, mutual funds are not without risk. When defined in terms of chances of losing money, the risk in mutual funds is no different than investing in stocks. Still they are relatively safer and a more convenient way of investing.

What advantages do mutual funds offer over equity stocks?

Here are a few considerations :

Diversification.

If you have only 1,000 to 5,000 to invest, the money will not buy many shares of a single stock. By investing in only few stocks, one of them may not perform well. This in-turn affects your portfolio performance.

Instead, when you invest similar amount in a mutual fund, your fund's portfolio may have 50 to 100 stocks. If one or two stocks doesn't perform well, your portfolio is less affected, because other stocks in the portfolio may perform well.

Professional Management.

Managers of stock mutual funds have instant access to information about every stock in their portfolio, whereas individual investors have limited access to such information.

Systematic Investment Plan.

Small sums of money can be invested in mutual funds, whereas SIP in stocks cannot done with small amount of money.

The only disadvantage in investing in a mutual funds is that you depend on the fund manager to make the right decisions regarding the fund’s portfolio. But, there are many funds which are out-performing consistently.

You might want to check out the Top Performing Mutual Funds.

Unless one is ready to dedicate considerable time and effort in stock investing, it is better to invest through the mutual fund route.

Historical Sensex Returns Updated - 2024

Historically Sensex has given returns of about 15% per year, despite volatility and price fluctuations of about -20% to +60%. The following table shows S&P BSE Sensex historical data - start & close values and the yearly returns of the sensex from 2000 to 2024. So far during the year the index has hit an all-time high of 75,124 and despite markets hitting all time highs not all stocks make all-time highs. There are many stocks still below their highs. Stocks like HDFC Bank, ITC, Asian paints are still well below their highs and some of them have given low returns over last 3-5 years. Individual or Retail investors can achieve consistent returns through investing via mutual funds , whether it be active or passive. Chasing returns from individual stocks is futile. Be a wise investor !

Historical BSE Sensex returns - updated 2013

We have already seen the historical returns of the BSE Sensex, which indicated an average return of about 20% per year, despite many yearly returns varying from -20% to +60%. The following table shows BSE Sensex historical data - open, close and the yearly returns of the sensex from 2000 to 2012. There are some interesting points to note from the above table. Post 2008 crash of about 50% and 2011 negative returns of 24%, markets have given positive returns of 81% and 25%. Also the average returns for the past years is about 20% despite the markets being down 24%. The lesson is pretty much clear - long term investing pays and one need not bother too much about the ups and downs of the markets. During the past few years, the returns from investing in individual stocks have been varied. Despite markets being at 2 year highs, only a few stocks are at similar highs, while most of them are still languishing well below their historical highs and are down anywhere ...

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