Mutual Fund Vs Shares - Where to Invest?
When it comes to investing, the investors often find themselves in a dilemma of having to choose between investing in shares directly or taking an investment exposure of equity markets through mutual funds. This article aims to discuss the difference between shares and mutual funds and various aspects the investors must consider while making an investment decision to invest in either of the two.
Here are the things you must consider:
1. Experience of Investing in Equity Markets
Investing in equity shares carries a much higher risk. As an investor, you need to research about the company in detail and be sure of its growth prospects before investing in the shares of that company. Mutual funds are therefore more suited for such investors, as the professional fund management team makes the research and the investment decisions.
2. Tracking the Investments
Adequate research is not only required at the time of making the investments, but it is equally important to keep a regular track your investments in shares of the companies. Since the companies operate in a dynamic environment, any major event can make or break that company. If you miss making the appropriate investing decision at that time, it can wipe out your investment returns, and in some cases, even the invested amounts. On the other hand, the portfolio of investment in stocks is continuously monitored and reviewed by the fund management team. You only need to make investment decisions based on your financial goals and fund requirement.
3. Risk Appetite and Inclination to invest in Other Asset Classes
Investing in shares is generally considered risky and thus more suitable for aggressive investors, as the equity markets tend to stay volatile in the short term. The investors can also have a moderate or conservative risk profile, which tends to keep from equity markets as such, and may continue investing in traditional investment products. However, mutual funds provide various investment options even for that set of investors. You can choose to invest in debt funds or gold funds or even a mix of multiple asset classes.
While the investment costs for investing directly in shares are lesser, being just the transaction costs, you must know that the costs involved in mutual funds include the fund management charges. However, considering the technical and sophisticated nature of the services offered by the fund manager, these costs can be considered reasonable.
One needs to invest in many stocks to diversify the portfolio and mitigate investment risks. On the other hand, one can stay invested only in a single mutual fund scheme and still enjoy the benefits of diversification, as mutual fund pool the money of the investors and invest in a basket of securities. Further, with the investment options available under mutual funds to invest across asset classes, market segments, and market sectors, mutual funds tend to provide much more diversification to the portfolio. If you want to invest in fixed income securities, you can invest in debt funds. Mutual funds also offer the option to invest in hybrid funds, which can provide you with investment exposure to equity and debt simultaneously.
6. Investment Horizon
Investing in stocks is generally preferred by those with short term investment horizon, as the daily movements in the stock prices, on the basis of stock specific triggers tend to impact the decision to stay invested for a longer term. Investors tend to invest in shares of specific companies based on their expectations of stock prices’ movements. On the other hand, such stock-specific triggers are not likely to induce investment in mutual funds, and hence, the investment is made depending upon the investors’ financial goals.
Once you have made due considerations of the points mentioned above, it might then be an easier decision for you to invest in stocks or mutual funds. Keep investing and stay invested.