Before giving the answer to this question, let’s first understand the three of them. 

  1. Stock Market – Investing your money directly in stock market is quite risky because fluctuations happen every single second. Instant purchase and sale is possible in stock market. One requires careful understanding of the market before investing money.
  2. Mutual Funds – Mutual Funds is a actively managed investment. There are professional fund managers which take care of the funds and try to generate better returns while ensuring complete safety and security of funds.
  3. Index Funds – Index funds are a part of Mutual Funds. Investing in index funds means investing in Nifty and Sensex. Nifty consists of Top 50 companies while Sensex consists of Top 30 companies.

 

Choosing an investment option depends on many factors like

* Age of the investor

* Tenure of investment

* Risk appetite of the investor

* Goal of investment etc.

 If one can take high risks, then investment can be made in direct Stock Market or Index Fund.

When risk taking capacity is moderate – high, mutual funds are preferred.