For Gen-Z investors, mutual funds offer better option than stocks:Experts share the benefits from safety to variety

For Gen Z professionals and first-time investors, entering the stock market can feel daunting. Direct stock investing demands significant capital, research, and constant monitoring—barriers that can overwhelm newcomers. Mutual funds, in contrast, offer a simpler, more accessible path to wealth creation. With low minimum investments, professional fund management, and instant diversification across sectors and stocks, mutual funds reduce both financial and behavioural risks. Experts say this makes them particularly well-suited for younger investors who are just starting their financial journey. Not only do mutual funds allow participation in equity markets with manageable risk, but they also help inculcate disciplined investing habits through tools such as systematic investment plans (SIPs). For Gen Z and first-time investors, mutual funds provide a structured, cost-effective, and reliable foundation—one that stocks alone may struggle to offer. Mutual funds: easier, cheaper, and safer for first-time investors Experts agree that mutual funds are far more practical for newcomers than direct stock investing. “Mutual funds are one of the easiest and most cost-effective ways to start investing,” Manish Srivastava, Executive Director at Anand Rathi Wealth Limited, explains. “You can begin with as little as ₹100, and at a low expense ratio, investors benefit from professional fund management and diversified exposure across stocks and sectors.” For small investors, building a diversified stock portfolio can be challenging because many quality stocks are expensive. “Mutual funds offer instant diversification through actively managed categories,” he says. “This allows investors to participate in equity markets without requiring the expertise or time to track individual stocks.” Prasenjit Paul, Equity Research Analyst at Paul Asset and Fund Manager at 129 Wealth Fund, adds that the biggest risk for small investors is not market volatility, but poor decision-making. “Mutual funds reduce this risk materially by limiting behavioural errors and ensuring disciplined participation.” Why mutual funds are more viable than direct stocks or IPOs The competitive IPO market and high-value stock selection add complexity for retail investors. While some IPOs generate listing gains, allotment probabilities are low, and stock picking requires time, access to research, and emotional discipline. “In this context, mutual funds are a sensible long-term option,” Srivastava says. “They offer consistent exposure without the operational and behavioural challenges of direct investing.” Paul concurs. “Mutual funds benefit from institutional IPO allocations and diversified participation across market cycles. They provide systematic participation rather than opportunistic speculation.” Stocks can complement, not replace, mutual funds While mutual funds form the foundation, both experts agree that selective direct equity investment can complement portfolios. “Jumping straight into direct equity is generally not advisable for first-time investors,” Srivastava cautions. “Mutual funds should form the core—especially flexi-cap, multi-cap, and large-and-mid-cap funds. Direct stocks, if any, should be a small satellite allocation in quality blue-chip companies, invested gradually.” Paul suggests a practical allocation for newcomers: 70–80% in diversified mutual funds and 20–30% in direct stocks, held with a minimum five-to-seven-year horizon. “Stock investing should be treated as a learning allocation, not the primary retirement engine,” he says. Selecting the right funds Diversification is critical, not just across fund categories but also across fund houses. “Each AMC follows a distinct investment style—value, growth, or blended,” Srivastava explains. “Diversifying across AMCs reduces concentration risk.” He cautions against chasing past returns. “Category-level selection combined with disciplined investing delivers better long-term outcomes than chasing the best-performing schemes of the past.” Paul adds that investors should evaluate fund consistency, manager tenure, risk metrics, and expense ratios. “There is no concept of assured returns in equity. Time horizon and discipline matter more than picking the ‘best’ fund.” The verdict for Gen Z and first-time investors For investors aged 27–30, equity mutual funds are the most practical starting point. “They are professionally managed, easier to analyse, and aligned with long-term goals,” Srivastava concludes. Paul sums it up succinctly: “At 27–30, the objective should not be return maximisation—it should be habit formation, capital protection, and long-term compounding. A well-constructed mutual fund portfolio, held patiently, remains one of the most effective wealth-building tools.” Flexi-cap, multi-cap, and large-and-mid-cap funds form the core, with an allocation roughly split into 55% large caps, 20–25% mid caps, and the remainder in small caps. Over time, as knowledge and experience grow, selective direct equity can complement this core approach. For first-time investors and Gen Z, mutual funds combine cost efficiency, professional management, diversification, and ease of access, making them the ideal starting point for building a robust corpus to meet both lifestyle aspirations and retirement goals.
Disclaimer: The opinions and recommendations mentioned above are those of the brokerage firm and do not reflect the views of Bhaskar English. Investors are advised to consult certified financial experts before making any investment decisions.