Mutual Funds vs Equities

Mutual Funds vs Equities is one of the most common comparisons investors make when deciding how to grow their wealth. While both aim to generate long-term wealth, the way they work, the risks involved, and the level of control they offer are quite different. Understanding these differences is key to making an informed investment choice that aligns with your goals and risk profile.

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What are Mutual Funds?

A mutual fund pools money from many investors and invests it across different assets like stocks, bonds, or other securities. A professional fund manager takes care of these investments, so you don’t have to track each one yourself. Since the money is spread across multiple assets, the risk is generally lower than putting everything into a single stock. Plus, mutual funds make it possible to start investing smaller amounts while benefiting from expert management.

Equity Fund Meaning

Equities are shares of a company that represent ownership. When you buy equities, you become a part-owner of that company and have a claim on its profits and assets. If the company performs well, the value of your shares can increase, and you may also receive dividends as a part of the profits. Equities usually offer higher return potential compared to safer investments like bonds or fixed deposits. Still, they also carry a higher risk since their value can go up or down depending on the company’s performance, industry trends, and overall market conditions.

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  • Mutual Funds
Returns
Fund Name 5 Years 7 Years 10 Years
Equity Fund SBI Life
Rating
 16.83% 13.6%
11.8%
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Opportunities Fund HDFC Life
Rating
 22.06% 16.38%
14.5%
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High Growth Fund Axis Max Life
Rating
 29.3% 22.69%
17.8%
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Pension India Consumption Fund ICICI Prudential Life
Rating
 20.5% -
15.5%
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Multi Cap Fund Tata AIA Life
Rating
 26.26% 22.72%
20.55%
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Accelerator Mid-Cap Fund II Bajaj Life
Rating
 21.04% 14.23%
14.33%
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Multiplier Birla Sun Life
Rating
 23.02% 16.66%
15.54%
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Pension Mid Cap Fund PNB MetLife
Rating
 34.5% -
18.41%
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Equity II Fund Canara HSBC Life
Rating
 16.57% 12.07%
10.61%
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US Equity Fund Star Union Dai-ichi Life
Rating
 14.69% -
13.87%
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Last updated:
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  Returns
Fund Name 3 Years 5 Years 10 Years
Active Fund QUANT 23.92% 31.48%
21.87%
Flexi Cap Fund PARAG PARIKH 20.69% 26.41%
19.28%
Large and Mid-Cap Fund EDELWEISS 22.34% 24.29%
17.94%
Equity Opportunities Fund KOTAK 24.64% 25.01%
19.45%
Large and Midcap Fund MIRAE ASSET 19.74% 24.32%
22.50%
Flexi Cap Fund PGIM INDIA 14.75% 23.39%
-
Flexi Cap Fund DSP 18.41% 22.33%
16.91%
Emerging Equities Fund CANARA ROBECO 20.05% 21.80%
15.92%
Focused fund SUNDARAM 18.27% 18.22%
16.55%

Last updated: August 2025

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Difference Between Equity and Mutual Funds

Here is a simple comparison of equity vs mutual fund across key aspects, making it easier to understand how they differ:

Aspect Mutual Funds Equities (Stocks)
Definition A pool of money from many investors managed by a professional and invested in different assets like stocks or bonds Direct purchase of shares of a single company, making you a part-owner
Risk to Returns Risk depends on the fund type. Equity funds carry higher risk, hybrid funds moderate, and debt funds lower, thanks to diversification High Returns can be very high, but risk is also greater
Control Over Investment Low. Fund manager decides where to invest High. You choose which company to invest in and when to sell
Diversification High. Investments spread across many companies or sectors Low. Depends on one or a few companies you choose
Management Professionally managed by fund managers Self-managed. You make all investment decisions
Research Effort Low. Fund managers and their teams do the analysis High. You must study the company and market before investing
Liquidity Redeem at NAV; redemption proceeds must be credited within T+3 working days (T+5 for schemes with ≥80% overseas assets). ELSS has a mandatory 3-year lock-in. Traded on stock exchanges during market hours. India follows a T+1 rolling settlement cycle for listed equities. A limited T+0 settlement option is being rolled out in phases for select securities.
Return Potential Moderate. Generally moderate and relatively stable over the long term, but less likely to deliver outsized returns compared to direct equities High. Some stocks can give very high returns, but losses can also be large
Risk Spread across different assets, so the overall risk is lower Focused on specific companies, so the risk is higher

Mutual Funds vs Equities: Tax Implications

Tax treatment on capital gains differs for equities, equity-oriented mutual funds, and debt mutual funds. The latest rules under the Finance Act 2024 (effective 23 July 2024) revised rates for equity-related instruments, while debt mutual funds continue under the Finance Act 2023 changes.

Investment Type Long-Term Capital Gains (LTCG) Short-Term Capital Gains (STCG)
Equities (Listed Shares) 12.5% on gains above ₹1.25 lakh (for sales on or after 23-Jul-2024) 20% if sold within 12 months (for sales on or after 23-Jul-2024)
Equity Mutual Funds (≥65% equity) 12.5% on gains above ₹1.25 lakh (for sales on or after 23-Jul-2024) 20% if sold within 12 months (for sales on or after 23-Jul-2024)
Hybrid Mutual Funds (equity-oriented, ≥65% equity) Same as equity funds (12.5% LTCG as above) Same as equity funds (20% STCG as above)
Hybrid Mutual Funds (debt-oriented, <65% equity) Units bought on or after 1-Apr-2023: Taxed at slab rate (no indexation) under Section 50AA.
Units bought before 1-Apr-2023 and sold on or after 23-Jul-2024: If held more than 24 months, taxed at 12.5% without indexation.
Units bought before 1-Apr-2023 and sold before 23-Jul-2024: If held more than 36 months, taxed at 20% with indexation.		 Taxed at the slab rate in all cases. For pre–1-Apr-2023 units, this applies if sold within the short-term period (24 months under the new regime or 36 months under the old regime). For post–1-Apr-2023 units, the slab rate applies irrespective of the holding period.

Equities vs Mutual Funds: Which is Better?

The decision between equities and mutual funds depends on your financial objectives, risk-taking capacity, and the level of involvement you prefer in managing your investments. Each has distinct features that make it suitable for different types of investors. Below are the points that explain when equities or mutual funds can be better:

  1. When Equities May Be Better

    Equities are suitable for investors who:

    • Prefer Direct Control: Investors who want to select the companies they invest in personally.

    • Can Handle Higher Risk: Suitable for those comfortable with market volatility and short-term fluctuations.

    • Have Time for Research: Works well for investors willing to study financial statements, industry trends, and market conditions.

    • Seek Higher Returns: Beneficial for investors aiming for higher long-term growth and capital appreciation.

    • Have Long-Term Horizons: Suitable for investors who can remain invested for years, allowing businesses time to grow.

    • Want Dividend Income: Certain equities provide regular dividends and capital gains.

  2. When Mutual Funds May Be Better

    Mutual funds are suitable for investors who:

    • Prefer Professional Management: Investments are handled by experienced fund managers.

    • Value Diversification: A single fund spreads investments across multiple companies and sectors.

    • Are Beginners: Easy entry point for individuals with limited investment knowledge.

    • Seek Balanced Risk and Returns: Aims to offer relatively stable performance with lower risk than direct equities.

    • Want Systematic Investment Options: Allows investing small amounts regularly through a Systematic Investment Plan in India.

    • Have Limited Time: Suitable for those who do not want to track the stock market daily.

Key Takeaways

Mutual funds and equities are popular ways to grow wealth, but they differ in how they work and the level of involvement they need. When looking at mutual funds vs stocks, mutual funds pool money from many investors, provide diversification, and are managed by professionals, which makes them suitable for beginners or those who prefer a hands-off approach. Equities give direct ownership in companies and the chance for higher returns, but they also carry greater risk and require active monitoring. The choice depends on your comfort with risk, investing experience, and the time you can dedicate to managing your money.

If you are considering mutual funds for your portfolio, you can easily start SIP in the best mutual fund plans in India to begin your investment journey.

FAQs

  • Is it better to invest in equities or mutual funds?

    It depends on your goals and risk profile. Mutual funds are better for those who want diversification, professional management, and lower effort. At the same time, equities suit investors who want direct control, can take higher risks, and have time to research companies.

  • What is the 7/5/3/1 rule in mutual funds?

    The 7/5/3/1 rule is an informal framework some investors use to set broad expectations: equities around 7%, debt around 5%, hybrid funds around 3%, and deposits about 1% above inflation. It is not a SEBI or AMFI guideline and does not guarantee returns. It should only be used as a general reference point in financial planning.

  • Are equities the same as mutual funds?

    No, they are not the same. Equities mean directly buying shares of a company and becoming its part-owner. Mutual funds pool money from many investors and invest in a mix of equities, bonds, or other securities through a professional fund manager.

  • Which is better, SIP or equity?

    SIP (Systematic Investment Plan) regularly invests in mutual funds, while equity means directly buying company shares. SIP is better for beginners or those who prefer disciplined, low-stress investing with diversification. Direct equity may be better for experienced investors who want control and are comfortable with higher risk.

  • Why are stocks called equities?

    Stocks are called equities because they represent ownership rights or equity in a company. When you buy a stock, you own a share of the company’s assets and profits, which is why it is called equity.

  • How many types of equities are there?

    Equities are commonly classified into different types, such as large-cap, mid-cap, and small-cap stocks. They can also be grouped as growth stocks, value stocks, dividend stocks, penny stocks, and blue-chip stocks. Each type has its own level of risk and return potential.

  • Are ETFs considered equities?

    Yes, equity ETFs are considered equity investments because they track and invest in a basket of stocks. However, not all ETFs are equities since some are based on bonds, gold, or other assets.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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