Things to consider before making the switch from mutual funds to stocks

Things to consider before making the switch from mutual funds to stocks

by 5paisa Research Team Last Updated: Dec 11, 2022 - 09:33 pm 15.7k Views
Listen icon

People are increasingly shifting away from mutual funds and toward direct stock investments. Here are a few things to consider before making such a transition.

There has been a significant increase in the number of new demat accounts in India since the COVID-enforced lockdown. Though it is encouraging that more investors are changing their attention away from tangible assets such as real estate. 

However, investment in mutual fund investments has slowed down. This likely indicates that some investors are shifting away from mutual funds towards investing directly in stocks. 

Having said that, there are pros and downsides to investing directly in stocks. And now is the moment for investors to consider how they want to gain exposure to their equity investments, whether through direct stocks or equity mutual funds. In this post, we will go over several factors you should consider before making such a shift. 

Right benchmark 

When you invest in a mutual fund, you may compare the manager's performance to a relevant benchmark index as well as to that of its peers to determine how well they are doing. Even if you are moving to direct stock investing, it is important to do a suitable benchmarking of your stock portfolio against key indices and mutual funds.

This will assist you in understanding how your stock portfolio is performing. Remember that when you invest in mutual funds, you are supported by an experienced fund manager and a research team. But when you invest in direct stocks, you are backed by your own reading and analysis.


Diversification is ensured through investing in mutual funds such as multi-cap funds. This diversity extends not only across sectors and stocks but also across market capitalisation. As a result, while investing in stocks, you must maintain proper diversification across sectors and market capitalisation.  

Diversified equity mutual funds have requirements that ensure they limit their exposure to individual stocks and use suitable risk management methods when taking sector exposure. As a result, when investing in direct stocks, you must have effective risk control measures in place.

Asset allocation

Furthermore, while contemplating investing in direct stocks, remember to keep the essentials in mind, such as allocating your capital to different assets. When investing in mutual funds, there are hybrid funds that handle asset allocation. You may also invest in equity and debt mutual funds to achieve optimal asset allocation, and rebalancing is simple. As a result, even when dealing with direct stocks, make sure you keep your asset allocation in line with your risk tolerance. 

Active management 

Direct investment in stocks necessitates active management, whereas mutual funds are managed by the fund management team. Furthermore, continuously managing your direct stock portfolio demands a significant amount of effort spent studying companies by avoiding the use of basic instruments such as prior stock performance. You must also manage your behavioural biases and make judgments intellectually rather than emotionally.


How do you rate this blog?

Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage


About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
Open Free Demat Account
Resend OTP
Please Enter OTP
Mobile No. belongs to

By proceeding, you agree to the T&C.

Latest Blogs
Mukka Proteins IPO Allotment Status

About the Mukka Proteins Ltd IPO The stock of Mukka Proteins Ltd has a face value of ₹1 per share and the price band for the book building IPO has been set in the range of ₹26 to ₹28 per share. The Mukka Proteins IPO will be entirely a fresh issue of shares with no offer for sale (OFS) component. A fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive.

M.V.K. Agro Food Product IPO Allotment Status

Building blocks of the M.V.K. Agro Food Product Ltd IPO The stock of M.V.K. Agro Food Product Ltd has a face value of ₹10 per share and it is a fixed price issue. The price for the book building issue is set at ₹120 per share. Being a fixed price IPO, the question of price discovery does not arise in this case. The M.V.K.

Amazon is set to take on Meesho with its Amazon Bazaar

The battle of the giants in Indian e-commerce is heating up as Amazon is set to challenge local favorites like Meesho and Flipkart's Shopsy with its latest venture, Amazon Bazaar.  In a bid to tap into the burgeoning market of value-conscious consumers, the global giant Amazon is set to disrupt it with its new venture.