Mutual Funds vs Direct Stock Investment

For any investor, there are multiple options available like stocks, bonds, real estate, and commodities. If you invest on your own, picking up your investments, monitoring their performance, and modifying your investment strategy over time would be a very hectic job.

There are three types of investors available, first is the one who completely does not believe in taking any type of risk and invests their money in conservative schemes like bank fixed deposit, provident fund, etc. The second type of investor is the one who is willing to take some risk with their money and hopes to earn long-term capital appreciation. After this comes the last type of investor who is willing to take high risks for good returns.

Investors who are willing to take moderate to high or very high risk, have two investment options- to invest directly in the stock market or they can consider investing in market-linked schemes like mutual funds. The final decision about choosing between these two options totally depends on investors’ risk appetite, let us help you to see the difference between both of them and which one is more beneficial to you as an investor.

What is Direct Stock Market Investment –

When an investor like you decides to invest in the direct stock of any company. When you invest in any stock you own part of the company and become a shareholder of the company. You can choose to invest in any company shares depending on your investment objective and budget. With the growth of the company value of your share price increases which benefits you by adding value to your investment capital.

What is a Mutual Fund –

A mutual fund is a fund of money given by many investors, where professional managers, i.e., fund managers, manage this money. The fund manager invests the fund in a safe manner little by little in different places, like bonds, the stock market, and other financial assets, so that the investor can get the maximum benefit from his money.

Every mutual fund scheme has an investment objective set and investors are allotted fund units in quantum with investment amount and depending on the fund’s existing net asset value(NAV). Based on the performance of the scheme, NAV appreciates or depreciates.

Why mutual funds rather than direct stock market investment?

Very often this question arises – why invest in a mutual fund rather than investing directly in the stock market, when we can easily buy a few good stocks ourselves or follow a good fund manager’s portfolio and save the cost of mutual funds?

The most appropriate answer to this question is time and research.

If as an investor you have time to do stock research and you know which stock is good and what is the right time to buy or sell the stock then you can go for investing in direct stocks.

But if you don’t have time then the best option available to you as an investor is going for mutual fund investment because there is a team of experts who are doing this for you full-time with dedication. You just have to find the right team and they will keep making money for you.

Here are a couple of more benefits as well that make investing in mutual funds a good option for you –

Diversification –

Investors get the opportunity to invest in different assets to protect themselves from inevitable risks. A mutual fund scheme diversifies its portfolio by investing in various asset classes and money market instruments. One single mutual fund unit is a combination of multiple stocks and assets. So even if one asset class underperforms, investment in other asset classes may be able to even out the losses. Stock market investment cannot offer such diversification.

Anyone can invest –

Mutual funds are managed by a group of expert analysts and fund managers who use their years of expertise to make the scheme perform well. So for mutual fund investments, one does not need to have in-depth market knowledge as compared to investing in the direct stock market.

Expert Fund Management –

The money you invest is managed by professional fund managers, providing greater expertise and returns to investors like you and me.

Variety –

There is something for every investor in mutual funds, from safe funds for those who want safe investments to high-return funds for those who want high returns.

Flexibility –

It is very easy and convenient to start your investing journey by easy entry to mutual funds as well as an exit option is very easy to do so.

Affordability –

You can start your investment option through mutual funds with a very low amount such as starting from Rs 500 you can start investing and get a diversified equity portfolio.

Conclusion: Are mutual funds a good investment?

Mutual funds are a very good investment option for investors who are looking to diversify their portfolio with low risk. Instead of going for a direct stock investment option and going all in on one company, a mutual fund invests in different stocks and tries to minimize investors’ portfolio risk.