Rs 1 Crore In Stocks Vs Rs 1 Crore In Mutual Funds: What Is Better?

Investing Rs 1 crore in a mutual fund’s growth option can outperform a similar investment in direct equities over time, according to chartered accountant Nitin Kaushik. In a long thread on X (formerly Twitter), he compares the two strategies over a five-year period. Through the post, he also shows that the way payouts are handled results in a huge wealth disparity.

Kaushik began his post by saying, “1 crore in stocks vs 1 crore in mutual funds. Both start the same. But 5 years later, the difference runs into lakhs.” He said the “secret” is factors like “dividends, compounding” and what he calls “the ‘hidden SIP’ effect.”

Kaushik also explained the concept of dividend yield, saying that Nifty 50 companies offer an average dividend yield of around 1.4%. “For every Rs 1 Cr invested, you get Rs 1.4L/year as dividend.”

Kaushik added that if the annual dividend is spent, it never compounds further.

To explain this, he compared two scenarios. In the first, he assumed a person invests Rs 1 crore in direct stocks without reinvesting dividends. He said, “Dividend: Rs 1.4L/yr, credited to bank account. Unless reinvested manually, it’s like ‘interest earned but not compounded’.” With a 12% compound annual growth rate, this portfolio would reach about Rs 1.76 crore in five years.

In the second case, Rs 1 crore is put in an index mutual fund that offers the option of dividend or growth reinvestment. Here, dividends are added to the fund’s net asset value rather than being distributed as cash. According to Kaushik, “Each payout is auto-reinvested,” much like a recurring deposit.

He refers to this reinvestment as a “hidden SIP.” He goes on to say that a dividend of Rs 1.4 lakh per year means around Rs 11,666 per month. This is comparable to a monthly additional SIP in mutual growth. It continues to buy more units even though the investor can’t see it.

In addition to the profits from market expansion, he says that this Rs 11,666 per month, at a 12% CAGR over five years, generates an extra Rs 4 lakh.

After five years, Kaushik said that an identical investment in a mutual fund with dividend reinvestment would reach about Rs 1.80 crore, while a portfolio of direct equities without dividend reinvestment would increase to about Rs 1.76 crore. The extra wealth from automatic investing comes to “Rs 4L+ more,"

Finally, Kaushik came to the conclusion that growth choices in mutual funds usually beat dividend distributions over time because of this “hidden SIP” effect.

Here’s his post

Kaushik's analysis shows that uninterrupted compounding is a silent way of money creation. Through his post, he demonstrates that automatic dividend reinvestment in mutual fund growth plans can increase wealth without requiring further work.