COMPARISON BETWEEN EQUITY AND MUTUAL FUNDS

Abstract

This research paper aims to provide a comprehensive comparison between equity investments and mutual funds, two prominent avenues for investors seeking exposure to the stock market. The study begins by outlining the fundamental characteristics of equity investments and mutual funds. Equity investments involve direct ownership in individual stocks, offering potential for high returns but also exposing investors to higher levels of risk. On the other hand, mutual funds pool investors' funds to invest in diversified portfolios of stocks, bonds, or other assets, providing a more diversified and professionally managed approach. This research paper presents a comprehensive analysis comparing equity investments with mutual funds, focusing on the dimensions of risk and return. The primary objective is to examine the relationship between risk and return for both equity shares and mutual funds, utilizing statistical parameters such as returns, alpha, beta, standard deviation, Sharpe ratio, Treynor ratio, Jensen ratio, and CAPM. The study relies on secondary data collected from reputable sources such as the BSE official website and Moneycontrol website and Prowess IQ Database. Monthly closing prices spanning a five-year period from January 2016 to December 2020 are analyzed for the top ten companies by market capitalization in equities, along with the BSE SENSEX as a benchmark. Additionally, ten mutual funds are selected based on their classification as large-cap or blue-chip funds. The necessity for this study arises from the complexity investors face in making informed investment decisions due to the inherent risks associated with both equity shares and mutual funds. Investors must consider various factors before allocating their funds, given the dynamic nature of financial markets.