Mutual Funds or stocks? Which will be a better product for investment in the New Year? Experts believe that it is difficult to predict a winner as both the investment products are dependent on the performance of the economy, sectors and individual companies.
Mutual funds come with diversification opportunities which helps when the markets are volatile. Investing in mutual funds via SIPs also allows investors to benefit from price movements and frees them from timing the markets, Harsh Jain, Co-founder and COO, Groww, told FE Online.
Talking about investment in stocks, Jain said that it gives investors greater flexibility to invest their hard-earned money in companies they believe in and know. â€œItâ€™s a high risk, high reward investment option.â€
In 2020, investors under the age of 30 made up more than 2/3rd of the users on Groww platform, which provides the option to invest online. Jain said that a marked shift in the average age of investments has been noticed. While earlier generations started investing well into their mid-thirties, millennials are starting to invest as early as mid to early twenties. On Groww platform, the average age of a millennial investor is 28.
Despite COVID-19 pandemic and the lockdown, investorsâ€™ interest in both mutual fund SIPs and stocks has gone up in 2020.
Jain said that from January to March, 70% users invested via SIP on Groww. This number increased to 77% during the lockdown period, especially around the time markets were volatile, showing a high awareness among the user base about SIP being the best investment mode during volatile markets, owing to the benefit of Rupee cost averaging it offers.
Groww launched stocks on its platform in June 2020 and more than 8 Lakh Demat accounts have been opened since then. Jain said, â€œSince the launch of Groww stocks, our observation is that currently, more than half of the new users onboarded on Groww intend to invest in stocks. About 50 % of these investors also start adding mutual funds to their portfolio within a few months of starting stock investing on Groww.â€ So, what about 2021?
Stocks vs Mutual Fund SIP: Key to investment in 2021
Jain said that whether one goes for mutual funds or stocks or a combination of both in 2021, the key lies in investing as per your investment profile.
â€œBoth equity mutual funds and stocks are dependent on the performance of the economy, sectors, and individual companies. Mutual funds offer diversification opportunities, which helps when the markets are volatile, while SIPs help investors benefit from price movements,â€ said Jain.
â€œStocks, on the other hand, offer a way to invest in what you believe in and know. It is a high risk, high reward investment option,â€ he added.
There is a strong synergy between mutual funds and stocks. In fact, a large number of stock investors are also investing in mutual funds. There is no drastic shift in investment preference from mutual funds to stocks as such.
Stocks vs SIP: Pros and cons
According to Jain, stocks and mutual funds have their pros and cons as investment options. â€œI wouldnâ€™t say that either is better because their efficacy depends on the type of investor and their investment needs.â€
Each investor is unique and needs to find the right combination of investment avenues to ensure that the financial goals are met with minimal exposure to risks.
Mutual funds are a preferred option for many first time investors looking to participate in equity investing, largely due to the diversification it offers as well as it being professionally managed by fund managers. However, novice investors who spend some time to get a grip over stock investments, earn good returns too, said Jain.
Investing in direct equity also allows investors a greater degree of freedom in creating their own portfolios.
â€œWhether one goes for mutual funds or stocks or a combination of both, the key lies in sticking with the investment plan,â€ he concluded.