Direct Stocks vs Equity Mutual Funds: What’s Right for Your Portfolio?

You might have come across social media posts claiming that an investment of ₹10,000 in Wipro shares in 1980 would be worth around ₹600 crores today.

It’s not just Wipro, there are countless stories about stocks like Infosys, MRF, Britannia, Havells, and TCS delivering massive returns over time.

Seeing these stories, many people are tempted to think, “Can I achieve the same?” and start investing in stocks with similar expectations.

But here’s the real question: Is it wise to invest based on such a perspective? Are these exceptional cases a reliable guide for your investment strategy?

Stocks involve direct investments in individual companies, whereas equity mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks. Mutual funds offer professional management and reduce risks through diversification.

New investors entering the stock market often invest with the expectation that the stocks they purchase will only move upward from the moment they buy them. But is this a realistic assumption? Can the stock market always remain on an upward trajectory?

The truth is, market ups and downs are natural. Volatility is an inherent part of the stock market. So, how can one truly achieve profits?

Investors need to understand that only a well-planned, long-term investment strategy can lead to sustainable gains. Are you prepared to invest with a clear plan and patience?

Table of Contents:

• Returns from Company Stocks
• Direct Stock Investment Returns (%)
• Equity Fund Returns (%)
• How Do Equity Mutual Funds Perform?
• Why the Difference in Returns?
• Final Takeaway

Returns from Company Stocks

As of December 13, 2024, let’s take a look at how some of the leading company stocks have performed:

• HDFC Bank: Over the last 3 years, it has delivered an average annual return of just 7%. Over 5 years, the average annual return was 8%, and over 10 years, it rose to 14%.
• Asian Paints: This stock has seen a 10% decline over 3 years, a 7% rise over 5 years, and a 12% rise over 10 years.
• TCS: Delivered returns of 7% over 3 years, 16% over 5 years, and 14% over 10 years.
• ITC: Has shown a 25% rise over 3 years, 15% over 5 years, but just 6% over 10 years.
• Sun Pharma: Achieved returns of 34% over 3 years, 33% over 5 years, but only 9% over 10 years.
• Tata Steel: Recorded 9% returns over 3 years, 29% over 5 years, and 15% over 10 years.

Now, here’s the question: Aren’t these some of the best companies in their respective industries? Yet, the returns they’ve offered vary significantly and carry considerable risk. Why is this so?

Moreover, for certain periods, the returns from some of these stocks have barely managed to keep up with inflation.

Does this make direct stock investing a reliable strategy for every investor? Can you afford to overlook the inherent risks and unpredictability of individual stocks?

Direct Stock Investment Returns (%)

Years/Return %	HDFC	TCS	Asian Paints	ITC	Sun Pharma	Tata Steel
3 Years	7	7	-10	26	34	9
5 Years	8	17	7	14	33	29
10 Years	15	14	12	6	8	15

Equity Fund Returns (%)

Years	Quant Flexi Cap Fund	ICICI Bluechip Fund	Invesco Large & Midcap Fund	JM Flexi Cap Fund	Nippon India Large Cap Fund	Edelweiss Midcap Fund
3 Years	18.67	17.95	22.99	26.76	20.95	26.2
5 Years	32.21	18.36	22.27	25.41	20.78	31.44
10 Years	18.93	14.01	16.36	17.88	14.55	19.63

Important Notes:

• Data as of December 13, 2024.
• Past performance is not indicative of future results.
• This is not a stock or fund recommendation.

How Do Equity Mutual Funds Perform?

When it comes to equity mutual funds, the returns speak volumes. Take the Quantum Flexi-Cap Fund, for instance, it has delivered an average annual return of 19% over the last 3 years, 32% over 5 years, and 19% over 10 years.

Equity mutual funds are generally considered safer for beginner investors due to their diversified portfolio and professional management. They help reduce the risks associated with individual stock investments.

The ICICI Prudential Bluechip Fund shows a steady growth with 18% over 3 years, 8% over 5 years, and 15% over 10 years.

The Invesco Large & Mid-Cap Fund has provided impressive returns of 23% over 3 years, 22% over 5 years, and 16% over 10 years.

Meanwhile, the JM Flexi Fund has offered even stronger returns of 27% over 3 years, 25% over 5 years, and 18% over 10 years. Nippon India Large Cap Fund stands out with 21% over 3 years, 21% over 5 years, and 14.5% over 10 years.

And let’s not forget the Edelweiss Mid Cap Fund, which has delivered stellar returns of 26% over 3 years, 31% over 5 years, and 20% over 10 years.

Doesn’t this highlight a key trend? Almost all these funds have consistently provided returns above 14% across different time horizons. For detailed insights, take a closer look at the accompanying table.

Isn’t it time to evaluate how equity mutual funds could fit into your portfolio?

Why the Difference in Returns?

Even though the mentioned companies are among the best in their respective industries, why does the performance differ? Mutual fund managers actively monitor portfolios, adjust investments, and track global markets.

If changes are necessary, they act quickly, protecting investors from losses and ensuring profits.

Can individual investors manage this level of efficiency? Most lack the time and expertise to analyze thoroughly. When investing in stocks directly, they often buy and forget.

How is the stock performing? What are its fundamentals and technical patterns? Such questions often remain unanswered, leaving profits or losses to chance.

While individual stocks like Wipro or Infosys have historically delivered massive returns, equity mutual funds provide more consistent returns with lower risk, making them a better option for long-term wealth creation, especially for new investors.

When should you exit or buy a stock? Without proper knowledge, many investors rely on social media rumors or tips from others, which leads to uninformed decisions. Isn’t this approach risky?

For those without enough market experience, wouldn’t it be wise to start with small investments? Until then, equity mutual funds are the best choice for small investors, offering professional management, diversification, and reduced risks.

New investors should avoid diving into high-risk direct stock investments. Instead, equity mutual funds allow for better returns at lower risks.

Without understanding stock fundamentals or market behavior, investing directly often results in losses rather than gains.

Shouldn’t investors be cautious and well-informed? Until you have enough expertise, equity mutual funds remain a safer and better option for wealth creation.

Final Takeaway

For investors, especially beginners, equity mutual funds offer a balanced approach to wealth creation with professional management, diversification, and reduced risk.

Direct stock investments can be rewarding, but they demand time, expertise, and the ability to navigate volatility.

Until you have the knowledge and experience to confidently handle individual stocks, consider equity mutual funds as a smarter and safer option for building long-term wealth. Always invest with a clear plan and patience to achieve your financial goals.