Stocks Vs Mutual Funds: Where Should You Invest To Become Rich?


The options of investment are in plenty today. However, what would suit an investor depends on the number of factors that may vary from one investor to another. Two of the most popular modes of investments for a long time have been stocks and mutual funds. Most of the investors take either one medium or the other to grow rich. But, at the same time, there are many investors or potential investors who are unsure about which mode of investment is best for them. Since the personal circumstances of each individual investor may not be the same, therefore the answer to this lies in the objective knowledge of these two modes of investment. Only by understanding the basics of stocks and mutual funds and comparing the two with one another can an individual investor decide for himself which of the two are most compatible with him. 

Understanding Demat Account

Before learning about both stocks and mutual funds it is important to know about Demat Account. The reason Demat Account is important is that in this account both stocks and mutual funds can be stored in an electronic form. The name Demat is a derivative of dematerialization: a process that converts physical shares and mutual fund units into the digital non-material form. Investors would do well to open Demat Account for both shares and mutual funds. The step by step procedure for opening account guides investors to open Demat Account for investing in shares or mutual funds is very easy.  

Once an investor understands what a Demat Account is and how to open Demat Account it follows that he should look at the definition of stocks and mutual funds.

Definition Of Stocks And Mutual Funds

Stocks refer to a proportional amount of claim an investor has on the assets and profits of a corporation. Stock is part of the amount of capital a company raises. A unit of stock is called shares. In simple terms, stocks represent how much part an investor owns in a company.

Mutual funds are a common platform of investment where different investors pool their money into them to invest in stocks, bonds, money instruments, etc. 

When investors open Demat Account, they can easily store either or both of them in their account. 

Expected Return 

The two forms of investment differ in the proportion of returns. A look at each of their performances will help in understanding this better. 

Mutual Funds

Fund Name

3 Years Return

5 Years Return

10 Years Return

SBI Magnum Multicap

12.62

21.12

12.77

ICICI Prudential Bluechip Fund

10.97

17.06

15.88

SBI Bluechip Fund

9.72

18.26

13.82

Kotak Standard Multicap Fund

12.76

20.97

  NA

HDFC Hybrid Equity Fund

5.59

15.65

11.77

Stocks 

Stock Name

3-Year Return (%)

5-Year Return (%)

10-Year Return (%)

Hindustan Unilever 

22.13

22.88

22.88

Infosys

9.69

15.89

11.84

HDFC Bank Ltd.

25.87

25.76

26.26

Ultratech Cement

9.54

15.24

20.95

Maruti Suzuki 

30.23

41.78

29.91


It can be inferred from the above-mentioned tables that the rate of returns is much higher in companies with stocks than compared to those with mutual funds. 

Risk Factor

The form of investment in mutual funds is such that the portfolio of an investor is diversified by the professional money managers. This implies that the investment of an individual in mutual funds is never limited to one company. Even if a corporation is performing poorly, an investor will not bear the brunt of the total loss of stocks as profits from other corporations will compensate for the loss.

In the case of stocks, the situation is not similar. Stocks are highly subject to market speculations and fluctuations is part and parcel in such a form of investment. Stocks bought in a single company which is not performing well can not be compensated by stocks from other companies which are performing well.

Stocks Vs Mutual Funds: Where Should You Invest To Become Rich?

The fluctuations in stocks are greater than they are in mutual funds.

Once an investor opts to open Demat Account, he can see for himself how differently both the modes of investment fluctuate. 

Investment Cost

The cost of investment in mutual funds involves paying a fee to the professional money manager. Apart from that, mutual funds also include many other forms of charges such as operational charges, administration charges, etc.

As Demat Account is mandatory in the case of stocks, one has to pay an account opening charge to open Demat Account and annual maintenance charge (AMC) post open Demat Account to the depository participant who manages the investor’s Demat account. 

From what follows it can be surmised that the investment cost incurred in mutual funds are relatively higher than in stocks. 

Also, in the case of an investor with a Demat Account, he will have to pay dematerialization charges for the conversion of both physical stocks and mutual fund units into electronic form. 

Monitoring Investment 

Investors who have opted for stocks would have to regularly keep monitoring their fluctuations. Since he has to manage his stocks on his own, it will involve the regular monitoring of his investments. However, if he got to open Demat Account the process of monitoring will be relatively easier with the Demat software application. 

With mutual funds, a great load of responsibility is shifted from investor to the professional money manager. This enables less involvement of the mutual fund investor on a day to day basis. 

Minimum Investment

In mutual funds, investments can be made on a very small amount. With the advantage of Systematic Investment Plan or SIP, an investor can make a minimum deposit of Rs. 500 each month which will keep compounding for the longer run. 

Stocks Vs Mutual Funds: Where Should You Invest To Become Rich?

Investment in mutual funds leads to gradual and moderate growth. 

There is no such thing as SIP in stock investment. Whatever the investor buys will be his stock. Also, it is important to open a Demat Account if an investor wants to buy or sell shares. 

Depending on these factors, it can be hoped that an investor, to some degree, can be certain about which form of investment would be best for him. Stocks give high returns and will greatly to the assets but also involve higher risk. For an investor who is willing to take such risks, he should open Demat Account and start investing in stocks. On the other hand, if one wants to play safe with a moderate but more than sufficient returns in the future, mutual funds would be a good option. As far as getting rich is concerned, the prospect lies more to the side of stocks than mutual funds. However, one should not overlook the terms and conditions of these modes of investment before coming to the right decision. Also, investors who open Demat Account can balance out the two by investing a part of their money in stocks and another part in mutual funds and can manage to keep track of both through the same platform.


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