KJ Somaiya College of Arts and Commerce

Vidyavihar(E), Mumbai - 400077

Autonomous

Financial Planning:- A Comparative study between Equity Investing and Mutual Fund
Investing

In Banking and Insurance, Submitted by Vikram Sardar

Under the guidance of Priti Dhadge
Sub:- Research Methodology
Academic Year 2018-19

Introduction:-
For those who have never invested in equity, it’s hard to know where to start. However,
everyone knows there are two distinct ways of investing in equity. One is to choose
stocks and buy and sell them yourself. The other is to invest through equity funds. The
final goal is the same: to benefit from the superior returns that equity investing offers.
However, in terms of what you do, the two routes are completely different.

Unless you are an expert investor, or are willing to put in the considerable amount of
time and effort required to become one, it does not make sense to invest in equities
directly. Therefore, for beginners, the choice is quite straightforward: you must invest
through mutual funds. I’m not saying that an individual can’t be successful by investing
directly. There are many who invest by themselves and get great results. However, in
general, the odds are unfavourable. For every 100 who try, perhaps five or 10 will be
successful. An even bigger problem is that even the few who succeed will probably do
so only after many failures, and each of these failures will cause them some losses.

For most of us, the goal is to simply get higher returns from our savings. So this
business of learning through losses turns out to be a deal breaker.

Equity-based mutual funds solve all these problems quite simply. A major advantage of
investing in equity through mutual funds is disciplined diversification. Fund managers
operate within an institutional framework which enforces certain ground rules of
investing. These could be a set of rules defining the investments, such as there must be
at least 15 or 20 stocks with no less than a certain percentage of the total portfolio.

Objective:-
● To compare Equity and Mutual fund in respect of their risk and returns
● Analysing the performance of equity and mutual fund schemes with their
benchmark NSE CNX Nifty.
● Finding performance by taking the quarterly average of 10 Years.
● Provide Information about pros and cons of investing in equity and mutual funds

Scope of the study:-

They study is primarily deals with equity and mutual fund investments. The study covers
10 randomly selected stocks out of 50 NSE CNX Nifty Companies and 10 randomly
selected mutual fund schemes out of the mutual fund industry of India for comparison.
The analysis is strictly based on the share prices and Net asset value of the mutual
funds which will help an investor to identify better investment avenues from the market.
The study goes through a period in which the market has shown booms, depression,
and consistent performance.

Research Methodology:-

● Sampling technique :- since the population is heterogeneous stratified random

sample were taken.
● Sample size :- Two Companies and two mutual fund scheme were selected
● Sample description:- In this study, 2 companies were chosen from the NSE CNX
Nifty and 2 mutual fund schemes selected on the basis of their Net asset value
and after that comparison made between them, using their benchmark.
● Sample Size (ii) :- 30 random people were chosen for the survey of preference
between direct equity and mutual fund schemes.

Review of Literature:-

Investing in equity mutual fund vs investment in shares, which is better? By Dhirendra

Kumar. - The data given by the CEO of value research, clearly shows how investment in
equity or equity oriented funds are clearly better than any other avenues of investing,
but the issue arises with the confusion of investing in mutual fund schemes or directly
investing in equity. He argues that investing in mutual fund is much safer and provides a
good amount of profit if left undisturbed for a long period of time. He also explains the
steep learning curve of investing directly in equity

Taking a step into the market, by Anaya Khattar- The article provides us with the data
of how stock market has been more beneficial to retail investors. He explains how even
though investing directly into equity is more beneficial profit wise, it is much more
vulnerable to the market volatility. He concludes by advising retail investors to focus on
mutual fund SIP if they are not understand investing directly in equity.

The better way of investing, by Ranveer Raisinghania:- The article delves into the ‘The
better way of Investing’, which basically is investing in a large cap or blue chip stock
which has provided a great return historically. He argues that mutual fund lags behind
investing directly into equity due to the fees and commission charges of the manager
and the distributor respectively. He provides data about how diversifying in blue chip
stocks is just as safe and more profitable than investing in mutual funds.

Null hypothesis:-
Investing directly in equity is much more risky even when diversified properly as market
volatility has a much greater effect in it when compared to mutual fund schemes.

Alternative Hypothesis:-
Investing directly in equity is just as safe as mutual fund when diversified properly, and
market volatility has the same effect both.

Research Report:-

Equity shares are a way in which retail investors or institutional investors buy stake or
part in a company. Equity shares are issued by the company which wants to raise
capital for various reasons. Owning equity shares of a company brings a lot of perks
and responsibility to the investors. Having equity shares give a shareholder the right to
take part in the important decision of the company, as they are the owner of the
company. Equity shares are mostly owned by retail investors and institutional investors
due to the opportunity of capital appreciation. A rise in the company’s market capital
also leads to a rise in the share’s price.

Advantage of Equity Shares:-

● More income:- Equity Shareholders are provided with the profit after all meeting
with all the expenses.
● Right to Participate in the control and management - Equity shareholders have
the voting rights and they can have a say in the important decision of the
companies
● Capital Profits- Equity shares are mostly owned by retail investors and
institutional investors due to the opportunity of capital appreciation. A rise in the
company’s market capital also leads to a rise in the share’s price.
● An attraction for people with lower income- Equity shares provides people with
lower income a chance to appreciate their capital as majority of shares can be
purchased by them.

Disadvantage of Equity Shares :-

● Uncertain and Irregular Income- The dividend income is only available to the
shareholders if the board of director permits so.
● Capital loss in depression period - During a depression period, equity shares run
into the risk of loss due to the fall in market capital of the company
 ● Loss on liquidation- In the case of liquidation of the company, equity
shareholders are given the last priority.

Mutual Funds is a professionally managed type of collective investment scheme

that pools money from many investors and invests it in stocks, debt instruments,
commodities, and other securities. Mutual fund has fund managers, who
manages the pooled amount and invests the same in securities according to the
fund. It acts as a easy for the retail investors to enter the market, as all the
research and investing is done by the fund managers.

Advantages of Mutual Funds :-

● Professional Management:- Mutual funds are managed professionally by people

who are well versed in market.
● Affordable Portfolio Diversification:- Mutual funds are a way for investors to get
diversified in a affordable manner. An investor won’t get any desirable
diversification in just Rs 500/- through investing directly in equity, but that’s not
the case in mutual funds
● Liquidity- There are times when investors are not able to sell the equity of a
particular company as there are no buyers for the security, but mutual fund
provides proper liquidity to the holders.

Disadvantages of Mutual Funds:-

● Lack of portfolio customization- The investment decision in mutual fund scheme

is done by the fund managers, so there is an obvious lack of control and thus
customization of portfolio is not possible.
● Choice overload- There are over 1500 mutual schemes provided by 38 mutual
fund houses. So the investors get confused about the difference in the funds,
which in most case is none. Recently, SEBI has taken steps to reduce this
problem, but it still persists.
● No Control over the cost- All the investors money is pooled, so the the cost are
beared by all the investors, and thus it can be too much sometimes, which leads
to a lower XIRR in the future.

In order to understand the awareness of the general public about investing, the
following survey was conducted. The survey was conducted on 30 people who were
selected in random, and included 18 students, 9 working professionals, and 3 stay at
home mothers.

Questionnaire

Question Yes No

Are you familiar with direct equity investment? 94% 6%

Are you familiar with mutual fund investment? 89% 11%

Have you invested directly in equity? 44% 56%

Have you invested in any mutual fund scheme? 53% 47%

Do you believe you need a certain level of expertise 68% 32%

in order to invest directly in investing?

Do you think Mutual fund is as profitable as direct 32% 68%

equity?

Do you believe Mutual fund is safer than investing 58% 42%

directly in equity?

From the following survey, it becomes clear that general public are aware of equity and
equity oriented funds, but they still refrain from investing in it. The answer to why they
refrain themselves are also pretty clear due to the survey. Clearly, it is evident that
people believe investing in mutual fund does to bear returns when compared to
investing directly in equity, and they also believe that investing directly intot equity
require skills which they may or may not have.
In order to to understand if the general opinion of the survey holds true, two random
company and two random mutual fund schemes are compared.

Hindustan Unilever Limited: -

Hindustan unilever limited is one of the top FMCG in India. The stock was valued at Rs
242 in 31st march 2008, and it grew to Rs 1349 by 31st march 2018. The stock has
clearly performed really well for the long term investors. The stock even performed well
in short term perspective. If an investor would have purchased 10 stocks of HUL at Rs
2420 in 2008, it would be valued at Rs 13,490 by 2018.

HDFC Bank: -
HDFC bank is one of the biggest bank in india. The stock was valued at Rs 281 in 31st
march 2008, and it grew to Rs 1988 by 31st march 2018. The stock has performed
phenomonely for the long term investors. It acts as a classic example of capital
appreciation. If an investor would have bought 10 shares at Rs 2,810 in 2009, it would
be valued at Rs 19,880.

HDFC Top 100 Fund (Growth)- Direct:-

HDFC top 100 fund is one of the flagship schemes of HDFC AMC. The NAV of the fund
in 31st march 2008 was Rs 137, and it grew to Rs 422 in 31st march 2018. The fund
has performed reasonably well. If an investor would have purchased 10 units of the fund
in Rs 1370 in 2008, it would be valued at Rs 4220 by 2018.

ICICI Value Discovery Fund (Growth) Direct:-

ICICI Value discovery fund has also acted as the flagship scheme of ICICI prudential.
The NAV of the Fund in 31st march 2008 was Rs 27, and it grew to Rs 141 in 31st
march 2018. The fund has performed reasonably well. If an investor would have
purchased 10 units of the fund in Rs 270 in 2008, it would be valued at Rs 1410 by
2018.

Conclusion:-

To Conclude, we can see how investing directly into equity has provided much greater
return than investing in mutual funds. Investing directly in equity was also safe in this
case as the companies were relatively stable. But what we cannot forget is that, the
data is just based on 2 companies and 2 mutual fund schemes, and it is not possible
that they can represent all the companies and all the schemes out there. Holding a good
amount of quantity of either stocks or mutual fund schemes can lead to great amount of
wealth if given proper time. Mutual fund provides diversification in a much cheaper rate,
so it does provide a little safer route to wealth, but it is equally vulnerable to market
volatility. In order to bring more people into the market, mutual fund industries should
come with new products with different style of investing, like funds which are more
focused and not as much diversified.

Biblography:-

www.bseindia.com
www.screener.in
www.finance.google.com
www.businessinsider.com
www.marketsmojo.com