Difference Between Mutual Funds and Equities
- 27th January 2026
- 12:00 AM
- 7 min read
A mutual fund allocates your money across different sorts of assets, including stocks, debt, or a mix of both. With an equity investment, you invest in public company stocks and aim to capitalise on their growth, but bear a higher risk.
As per the SEBI, there are 13.6 crore investors who invest directly in stocks. Also, mutual fund folio count stands at 25.86 crore. As both investment avenues are gaining popularity, choose one by learning the key differences between mutual funds vs equities here.
Understanding Stocks and Mutual Funds
Before diving into the difference between equities and mutual funds, you must first have a clear idea of what they are. Learning how investors can invest in each of these and make an optimised return will help differentiate them with much clarity:
What are Equities or Stocks?
Equities, also known as company stocks, are an investment avenue that essentially provides you with an ownership share in a company. Thus, when you invest or buy stocks from the stock exchanges (e.g. NSE or BSE), you essentially get a small ownership share of the company.
Depending on the company’s performance, market conditions, and other factors, as the value of those stocks rises, your investment value also rises.
For example, you can participate in the stock market via a trusted broker such as the PL Capital Group – Prabhudas Lilladher. With a Demat and a trading account with them, you can explore and buy company shares and store them in your Demat account.
Suppose you buy 100 shares of a company at INR 200 per share. After some time, the share prices go up to INR 260 per share. If you sell them, your investment value becomes INR 26,000. You book an INR 6000 profit on your initial investments before taxes and charges.
However, the equity market is highly volatile. It means company stock prices change rapidly in the short term, making an equity investment risky. Ideally, to achieve an optimised return, you might need to hold stocks for a long term, i.e. 5 to 10 years.
What are Mutual Funds?
To understand the differences between mutual funds vs equities, you must also understand what mutual funds are. These are investment vehicles where fund houses pool money from you and other investors. Depending on the type, objective, etc, of the fund, they invest your money across assets such as equities, fixed-income securities (eg., bonds) or a mix of both.
The aim here is to capitalise on the growth of the underlying assets and provide you with an optimised return. Here, instead of direct stock prices, you buy fund units at the prevailing NAV of a fund on a given day.
Key Difference Between Mutual Funds vs Equities
| Parameters | Mutual Funds | Equities |
| Risk | Here, the risk level is usually less risky as fund houses spread your investment across different company stocks and other equity-related instruments. | Risks are much higher as the profitability of equity investments is tied to company performance and other factors. |
| Return | It provides a moderate level of return, usually between 9% to 12% in a year. | Due to a higher risk exposure, the chances of return are also higher. |
| Convenience | It has a higher convenience, especially for beginners, as fund managers usually take care of your investment. | You must keep track of your investment, market performance, and other factors and signals to buy and sell shares and book profits. |
| Control | Especially for active funds, fund managers decide investments across assets on your behalf. | You have the overall control of your bought equities or shares. |
| Cost | It involves an expense ratio, management charges and exit loads. | It involves costs such as brokerage charges, transaction costs, AMC for maintenance of your Demat account, etc. |
With PL, invest in mutual funds, stocks, gold bonds, and more using the PL Capital app. Download the app today and start investing!
Which One is Better Between Mutual Funds vs Equities?
Based on a few different factors, you must decide which one suits you better after learning their differences:
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Trading and Liquidity
You can trade or invest in equities at any point in time during the market hours of a trading day. Mutual funds are also liquid, allowing you to buy and sell units, but you must bear their applicable cut-off times. Also, special schemes such as ELSS have less liquidity as they have a lock-in period of 3 years.
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Market Timing and Speculation
If you are someone who has experience of speculating a stock’s performance based on volatility, market conditions, etc, to make buy or sell decisions, direct equities might suit you. This approach does not apply in mutual funds, providing you with a stable and controlled investment option. Thus, based on your experience and risk appetite, you can choose one.
Mutual Funds Calculator
Before you invest in mutual fund schemes, you might want to know your anticipated return. A mutual fund calculator might be of help here. Whether you are going for an SIP or a lump sum, you put your investment amount, expected return and investment horizon, and a mutual fund calculator generally shows you your anticipated return upon maturity.
Conclusion
When investing, it is quite common to get confused between mutual funds vs equities. Mutual funds pool money from you and invest it across various assets, reducing risks and providing diversification. Equity investments allow you to get company shares and have the potential to offer a higher return with a higher risk.
With PL, you can explore and invest in stocks, mutual funds and more from the PL Capital app. Download the app, create a Demat account and start investing!
FAQs on Mutual Funds vs Equities
1. What is the difference between equity and mutual funds?
By investing in equities, you essentially purchase company stocks. While mutual fund houses, depending on their strategy, objective, etc, allocate your investment across assets like stocks, bonds, and other securities.
2. Between equity and mutual funds, which one provides a better diversification?
Between mutual funds vs equities, mutual funds offer better diversification, as they allocate your money across different companies’ stocks. While equities are more tied to the performance of an individual company that you invest in.
3. What are the risks associated with equity investments?
Risks such as market risks are involved with equities, and if the market fluctuates more frequently, your investment value might drop. Also, company performance, regulatory, and liquidity risks, etc, are there.
4. How does professional management differ between equity and mutual funds?
In mutual funds, fund managers do market research and analysis and allocate your money across assets. In equities, you must research the market and invest.
5. Are equity funds and mutual funds the same?
An equity fund is a type of mutual fund that predominantly invests in equity and equity-related instruments. Mutual funds can be of different types that invest in equities, fixed-income securities or a mix of both.
6. Which is more suitable for beginners: equities or mutual funds?
As mutual funds allow investments at a relatively affordable amount and provide managed diversification, they are more suitable for beginners than equities.
