Investing in equities for the long term is one of the best options for wealth creation, but it does not mean that you have to buy and trade individual stocks, you can get that exposure through equity mutual funds as well. Huh.

If equity is the parent, then equity mutual funds are the child. In equity investment the investor himself is the driver whereas in mutual funds the fund manager acts as the driver of the investor.

Here are some key points to note:

1. Diversification – Stock investing results in concentration of investments in a few stocks whereas mutual funds help in diversifying into different stocks. Equity mutual fund schemes usually have 30 to 50 stocks.
2. Professional Management – Stock selection is a very difficult process and requires expertise which can be costly and time consuming. Mutual funds have a team of analysts and fund managers who invest in stocks after thorough research.
3. tax benefits – Trading in stocks results in short- and long-term profits and requires keeping records of dividends, rights, bonuses and other corporate profits. No such records are required to be maintained for corporate dealings in Mutual Funds. The fund manager makes profits and trades in equities without affecting taxation for the mutual fund investor. The investor only needs to show the buy and sell transactions of the mutual fund.
4. Cost – Trading in shares involves various costs such as demat charges, brokerage, exchange charges, turnover tax, etc. which are not included in the mutual fund but are embedded in the NAV.
5. Discipline in investing Very disciplined investments can be made in mutual funds through SIP and STP, where a fixed/variable amount is automatically deducted on the specified dates without any human intervention. There is no such facility in stock.
6. Stay updated with current events – It is important to stay updated on current events as this leads to volatility in prices. The tracking of corporate news in mutual funds is done by the analyst and the fund manager. Profit/Loss Booking on Equity is a must and for this one needs to keep oneself updated with the latest happenings and news about the companies in which one has invested.
7. saves time – Investing in mutual funds saves a lot of time as it is easy, fast and an option for digital transactions. Stocks need to follow a lot of formalities on a regular basis.
8. Regulatory Compliance – Mutual funds are governed by strict laws of SEBI and other government machinery which keep the system under various checks. Direct equity investments require the investor to comply with those rules.
9. Stock Selection – There are more than 5000 stocks listed on the exchanges. Selecting some stocks for investment is impossible and difficult. In case of mutual funds, the fund manager selects the stocks to invest with the help of analysts. They also track the performance of those companies and their respective industries.
10. Profitability – An investor invests in different stocks and they all do not perform together. There may be some stocks which take time to grow after investment. In fact, returns from some stocks can be lower than others and are held for longer periods, sometimes years. In mutual funds, the returns are combined (including the entire portfolio of stocks the fund has invested in)
11. Sector wise allotment – You can choose to invest in a particular sector. In case of mutual funds it is simple. For example, if one wants to invest in pharma stocks then he can invest in any pharma fund. It saves the investor from choosing a good pharmaceutical company and understanding their product.

However, to enjoy the thrill of stock trading one can always allocate a part of investable capital in quality stocks as mutual fund investment is passive in nature.

Views are personal: writer is Rohit K Sonthalia SFIC Group of Companies, Kolkata


Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way intended to predict or time the markets. The views expressed are for informational purposes only and do not imply any investment, legal or taxation advice. Any action taken by you based on the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any way for the consequences of such action by you.


Mutual fund investments are subject to market risks, read all the scheme related documents carefully.