<p>To accomplish your personal financial goals, it is paramount that you invest regularly and steadily move towards the goal. Just as it is vital to invest periodically, choosing the right investment tool is equally important. You can also choose to invest directly in stocks, or invest in markets through mutual funds. Knowing the difference between stocks and mutual funds is essential to start your investing journey. If you are in a dilemma of investing in mutual funds vs stocks, this article will help you in your decision-making process.</p>
<h2 style="font-size:21px">Stocks or mutual funds – Which is better for you?</h2>
<p>Read the comparison between stocks and mutual funds below to know which one you should invest in:</p>
<h3 style="font-size:18px;">1. Familiarity with stock markets</h3>
<p>Investing directly in equity markets through stocks requires you to research the company, its sector, its growth prospects and its valuation. On the other hand, <a href="https://www.utimf.com/">mutual funds</a> render professional fund management to the money invested, wherein a team of research analysts and extensive research back the <a href="https://www.utimf.com/about/key-people/fund-managers/">fund managers</a>' investment decisions. As such, it is advisable to invest through mutual funds if you are a first-time investor.</p>
<h3 style="font-size:18px;">2. Tracking investment portfolio</h3>
<p>Deciding to invest in the market is only the first step towards achieving your financial goals. You must regularly review the progress of your assets. When you invest in stocks, you must review their performance frequently as the dynamics of the company and the sector may change significantly due to regulatory or statutory changes, etc. On the other hand, your fund house may take such necessary review for the stocks in their portfolio on your behalf. As such, the portfolio review for mutual funds is required only at extended intervals to check MF schemes' performance and eliminate underperforming schemes, if any.</p>
<h3 style="font-size:18px;">3. Asset allocation</h3>
<p>If you invest solely in stocks, you are exposed to the risk of exclusive equity investing and company risks. On the other hand, mutual funds provide you with a wide range of mutual fund schemes to invest across asset classes. The proportion of different asset classes like equity, debt, gold, etc., in an investment portfolio, is referred to as asset allocation. With mutual funds, you can invest in <a href="https://www.utimf.com/mutual-fund-products/equity-mutual-funds/">equity schemes</a>, <a href="https://www.utimf.com/mutual-fund-products/debt-funds/">debt schemes</a>, <a href="https://www.utimf.com/mutual-fund-products/hybrid-funds/">hybrid schemes</a>, etc., to align your risk profile with your desired asset allocation strategy.</p>
<h3 style="font-size:18px;">4. Risk bearing ability</h3>
<p>Equity investing is always associated with an aggressive investing strategy and is suitable for investing with a high-risk appetite. A stock price may move wildly over a short period, depending upon various factors, including changes in the macroeconomic environment. While mutual funds may also invest in stocks and reflect volatile movements, the investment portfolio tends to be diversified with investments in different companies and asset classes.</p>
<p>Further, different mutual funds schemes can cater to investors with varying risk profiles like aggressive, moderate, conservative etc. For example, a conservative investor, who prefers stability in the portfolio, may choose to invest in debt funds. In contrast, an investor with a moderate risk profile may want to invest in hybrid funds, which simultaneously invest in equity and debt instruments.</p>
<h3 style="font-size:18px;">5. Tax benefits</h3>
<p>Investing directly in stocks may not provide you with any tax benefits at the time of investment. However, investing in a specific category of mutual funds, namely <a href="https://www.utimf.com/solution-based-plan/uti-elss/">Equity Linked Savings Scheme (ELSS)</a>, can make you eligible for a tax benefit of up to Rs. 1.50 lakhs under Section 80C.</p>
<h3 style="font-size:18px;">6. Investment horizon</h3>
<p>Some investors may invest in stocks directly in anticipation of their stock price targets over the short and long term. However, when such targets are achieved, the investors may liquidate their investments or switch from one stock to another. On the other hand, mutual fund investments are not likely to be initiated from such stock-specific triggers, and instead, such transactions may be pushed in pursuit of the financial goals.</p>
<p>So, now that we have discussed the comparison of mutual funds vs. shares, it would have gotten easier for you to make an informed decision of whether to invest in stocks or mutual funds. Keep saving and stay invested!</p>
<p><strong>Note</strong>: The tax provisions mentioned in the article are for illustrative purposes only and are updated as per the Union Budget 2022 presented in the Parliament in February 2022. The tax rates for capital gains will be as per the tax laws applicable on the date of redemption/ sale and not on the investment date. Please contact your tax advisor for professional tax advice.</p>