Why the young would rather buy stocks than invest in mutual funds

A considerable proportion of young adults are increasingly choosing to invest directly in equity markets instead of pursuing mutual funds, according to a recent report. The study conducted by Fin One, a project of the fintech brokerage firm Angel One, reveals that 93% of India's youth are regular savers, with most setting aside 20-30% of their monthly earnings.

Furthermore, stocks have become the favoured investment option, with 45% of participants indicating a preference for them over traditional alternatives such as fixed deposits or gold, as stated in the report by Fin One, a division of Angel One Ltd.

Currently, 58% of young Indian investors are engaged in stock investments, while 39% prefer mutual funds. More conservative options like fixed deposits (22%) and recurring deposits (26%) are less popular, according to the brokerage firm's findings. This trend reflects a balanced strategy among the youth, seeking both high returns and stable savings.

Who are these young people?

The report is based on data collected from 1,600 Indian youths across more than 13 cities, focusing on four essential aspects: saving behaviour, investment preferences, financial literacy, and the utilisation of technology and financial tools.

It highlights the significance of digital platforms and technology, with 68% of respondents regularly employing automated savings tools, emphasising the growing influence of fintech on the financial practices of India's younger generation.

Why they prefer buying stocks directly

Despite their disciplined saving habits, 85% of young Indians identify the high cost of living — particularly in areas such as food, utilities, and transportation — as the primary obstacle to saving, according to the survey report. This suggests that escalating living expenses pose a significant challenge for the youth in India.

Many young Indians favour direct stock investments over mutual funds for reasons of control, transparency, and the potential for quicker gains. Stocks allow them to directly influence their portfolios, selecting specific sectors or companies based on personal research and conviction.

Mutual funds provide a level of risk reduction through diversification. However, investing directly in stocks may offer the possibility of higher returns, albeit with increased risk. The decision between these two investment options is contingent upon an individual's risk appetite, financial objectives, and investment timeline.

Further, many young investors see direct stock investments as an opportunity for higher returns, given India's rapidly growing economy and expanding tech sector. The mutual fund route, with its associated fees and long-term focus, is sometimes perceived as slower and less flexible for immediate gains. 

Furthermore, access to low-cost trading platforms has made it easier for the youth in the country to buy and sell stocks, while mutual funds sometimes require a longer commitment and involve fees that reduce returns.