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Tata Capital > Blog > Wealth Services > Direct Equity vs. Equity Mutual Funds: Which should be preferred?

Wealth Services

Direct Equity vs. Equity Mutual Funds: Which should be preferred?

Direct Equity vs. Equity Mutual Funds: Which should be preferred?

The financial market in India is home to a variety of investment options that are each suited to different investor profiles. For the risk-friendly, aggressive investor equity is no doubt an excellent investment option. The risk associated with the investment may be on the higher side, but the potential to generate returns that are higher than average also increases significantly when equity is added to an investment portfolio.

If you’re a risk-friendly investor who doesn’t mind taking a higher level of risk in return for the potential to earn higher returns in the long run, then equity investments are for you. That said, there are two key ways in which you can add equity to your investment portfolio. The first is through direct equity investments. The second is by purchasing equity mutual funds. Which of these is the better choice? And which one should you prefer?

To answer these questions, let’s take a closer look at these two kinds of equity investments.

Direct equity

Direct equity essentially means that you invest directly in the stock market. To do this, you will typically need to open a demat and a trading account and invest in the markets through a stock broker. Once that’s done, you can buy shares of companies directly from the stock market. In other words, you can purchase the shares of the companies that are listed on stock exchanges like the NSE and the BSE.

Additional Read: There is a deep dichotomy between the real economy and the equity markets. Let’s understand why.

The upsides of choosing direct equity

Choosing direct equity for your investment portfolio gives you many advantages, as an investor.

  • You have complete control over your investments.
  • You can liquidate your investments at any time during a trading session.
  • Individual stock selection is possible, since you can buy or sell a single stock.
  • You can carry out speculative trades.

Direct equity: Whom is it best for?

Since the direct equity option requires that you make the investment decisions yourself, it is a better choice for seasoned investors who have a good idea about how the market functions. Timing the market and taking buy, sell and hold decisions need to be done frequently. It is also important to keep yourself updated about the various developments nationally and internationally. So, investing in direct equity is a good choice if you can handle these requirements.

Equity Mutual Funds

Equity mutual funds

Equity mutual funds are essentially investment options where the funds from different interested investors are pooled together, and this amount is then used to purchase the stocks and equity-based assets of different listed companies. Like all categories of mutual funds, equity funds also come in different kinds, depending on the kind of companies they choose to invest in.

For instance, large cap equity funds invest in large cap companies. Banking and financial services funds invest in the stocks companies in that sector. And focused equity funds invest in a concentrated, high conviction portfolio of maximum 30 stocks. Equity funds are managed by professional fund managers, who take decisions about buying, selling, or holding the assets in the funds.

Additional Read: Equity Mutual Funds see the first monthly outflow in 4 years. Let’s see why.

The upsides of choosing equity mutual funds

Choosing equity mutual funds for your investment portfolio gives you many advantages, some of which are listed here.

  • Your funds are managed by a professional with considerable experience in the markets.
  • Your portfolio is already diversified to a certain extent, since mutual funds invest in multiple companies.
  • Your overall risk exposure comes down significantly.
  • You can choose to invest in tax saving mutual funds like ELSS to save tax.

Equity mutual funds: Whom are they best for?

Equity mutual funds are ideal for investors who are just beginning their journey in the stock markets. Since these investors may not have the expertise needed to choose stocks for their investment portfolio, the seasoned competence of a fund manager can help bridge the gap. Additionally, equity mutual funds are also suitable for investors who do not have the time to conduct the in-depth research needed to invest in direct equity.


So, depending on the kind of requirements you have, you can choose to add direct equity or equity mutual funds to your investment portfolio. If you wish to invest in equity funds, Tata Capital Wealth management offers a variety of alternatives to choose from, including large cap, mid cap, small cap, multi cap and different kinds of sectoral funds. In addition to that, Tata Capital Wealth offers you various categories of Portfolio Management Services (PMS) Products you can choose from to manage your investment and wealth prudently.

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