Stocks vs Mutual Funds: Which will make you a millionaire?

Long-term investment can aid in the accumulation of wealth over time. Being unaware of the stock market and mutual funds does not mean that you cannot make investments.

You can always learn the basics required to make the best investments with the minimum risks possible. Or you can also hire an accountant or investment advisor, or Independent Financial Advisor to guide you better.

Stock market and mutual fund investments can allow you to grow your money at your comfort. However, the market is volatile, and if you invest in the wrong shares at the wrong time, you may lose money.

While there are no certainties in the stock market, one approach is likely to make you money over time.

Various trading strategies are available, but the most common is buy and hold. As we are in a secular bull market after 2007’s financial crisis, the buy and hold strategy is outperforming. The key is to put money into something that will last a long time. Buying quality investments and holding them for the long term is what long-term investing entails.

You can get exposure to the equity market either through buying individual shares, buying an index, like FTSE 100, FTSE 250, S&P 500 and so on or investing in a mutual fund.

But one question that can arise in your mind and confuse you about the best investment plan in which one is a better investment? Stocks or mutual funds?

Here are some of the points you can use to compare both the options and decide which option will suit you and your financial requirements.

1. Risk Level

You do not have anything to protect you when it comes to single stocks or shares if market volatility turns against you. In comparison to direct equities, mutual funds are less prone to market volatility.

However, when you invest in mutual funds, you diversify your portfolio and lessen the impact of market volatility by investing in 50 to 100 different equities.

This means lower returns but lower risk too.

2. Rate of return

Risk and rate of return are connected.

  • Higher risk means a higher rate of return and a higher risk of loss.
  • Lower risk means a lower rate of return and a lower risk of loss.   

While both stocks and mutual funds provide significant returns, equities have traditionally delivered better returns than mutual funds due to their inherently higher risk.

3. Investment size

You can start investing in mutual funds with a limited and small amount of money. Mutual funds allow investors to acquire vast volumes of equities by pooling money from various sources.

In the direct purchase of shares, this may not be feasible. Individual investors must invest a significant sum to purchase substantial direct shares. While modest quantities of money can be used to buy shares, larger sums are required to purchase high-quality shares.

4. Time and commitment

Investing in the stock market requires dedication and effort. You must have a trading or investing plan. It usually includes:

  • research and choose stocks to purchase
  • when to buy
  • profit target
  • stop losses
  • dealign with any margin calls from broker

While you may use internet research tools to assist you, the final choice is ultimately yours.

On the other hand, when you invest in a mutual fund, you are just the one giving your money to be invested. A team of researchers analyse the market and choose the best stocks to buy.

In this case, you have the assurance that experienced professionals will manage your money. The investor does not have to do any legwork because the fund manager makes all investing decisions.

5. Liquidating your position

Like shares, most mutual funds are listed on the stock exchange, and the market price is readily available. It is simpler to sell your positions in the market at a current market price when you own either individual equities or units in a mutual fund.

6. Exit restrictions

Stocks can be sold at any time without incurring an exit fee, whereas most equity mutual funds carry a one-year exit load. If you sell your stock before the year is over, you’ll have to pay an exit load (up to a certain per cent) on top of the short-term capital gains tax.

7. Investment costs

Every year, mutual fund firms charge 2 per cent to 3 per cent in fund administration fees, which may appear little at first but add up over time.

But that does not mean that stock investment does not include any costs. Apart from the annual maintenance fees, you also have to incur expenses for stock investment setup (trading account).

8. Taxation

When you invest in mutual funds, you will not have to pay taxes if the fund sells any stocks in its portfolio. However, you must pay stamp duty when you purchase shares.

Returns from both shares and mutual funds are taxable as capital gains.

Tax tip- invest through ISA and pay no tax.

9. Systematic transfer plans

Cost averaging with mutual funds is straightforward since you can set up regular (weekly, fortnightly or monthly) SIPs, and your investments will be debited automatically.

In shares, this is not feasible. If you want to conduct cost averaging with shares, you must continually monitor the market and invest on dips.


Investment in mutual funds is easy compared to stock investments, especially if you don’t know much about investments.

When investing directly in stocks, amateur investors make several blunders, such as holding on to losses and selling winnings too soon, lack of diversification, over-trading, analysis-paralysis, and so on.

Investing in mutual funds protects you against such blunders since your money is managed by a seasoned expert with a track record.

Mutual Funds are also less likely to fluctuate significantly over time since they contain a diverse portfolio of equities, decreasing the risk of early withdrawal.

If you are still unable to decide which investment option is the best for you, you can go for hybrid funds. Hybrid funds allow you to invest in equities and bonds in the same plan.

Experlu Editorial Team
The editorial team at Experlu is comprised of seasoned financial professionals dedicated to providing high-quality content on accounting and finance. With a wealth of experience and diverse expertise, the team produces insightful articles that have established the Experlu blog as the UK's leading financial and accounting resource. The team includes accountants, auditors, and business advisors who stay updated with the latest industry developments. Their commitment to excellence ensures that Experlu remains a trusted source of information, helping readers stay informed about audit, business, finance, and tax matters.