In This Article, You Are Going To Learn About Mutual Funds vs Stocks, Advantages Of Mutual Funds, Advantages Of Stocks And Mutual Funds vs Stocks, Where to Invest ?.
Mutual Funds Collect Money From Many Investors And Then They Assign An Experienced Fund Manager For Each Fund. The Fund Manager Will Manage The Funds Collected From Investors.
For Example, If We Invest In Equity Mutual Fund. Then The Fund Manager Will Invest The Funds In Equity Segment ( STOCKS ). This Is How Mutual Fund Works.
Mutual Funds vs Stocks
Investing In Mutual Funds : Advantages
For Example, If We Invested In A Certain Mutual Fund And We Keep On Investing Some Amount Every Month, And Like Us There Are a Lot Of Other Investors Who Invests Money In The Same Mutual Fund.
So every day The Mutual Fund Collects And Invests In Stocks And They Keep On Averaging The Stocks.
Instead Of Investing In Mutual Fund, If We Invested In Stock Market And After That Day If The Stock Falls 10% Or More. It Will Effect Our Portfolio. But It Is Not The Case With Mutual Funds. Because every day They Receive Money From Investors. So Even If The Stock Falls 10% Or 20% They Invest Again At Lower Prices This Will Averages The Stock Price.
The Biggest Advantage Of Mutual Funds Is Diversification.
Most Of The Retail Investment Amount Is Very Small. So While Investing With The Small Amount Of Money You Cannot Afford To Invest In Many Stocks. You Can Only Invest In Some Of The Stocks.
If By Any Reason If Any Company Performs Bad, The Share Price Will Fall And It Will Effect The Portfolio Very Badly. Because There Are Only Some Stocks And If One Underperforms Also It Will Effect The Portfolio.
But In Mutual Funds, They Collect Huge Amounts Of Money From Investors And Invests In Lot Of Stocks Which Will Diversify The Portfolio. Even If One Or Two Companies Performs Bad. It Will Not Effect The Portfolio. Because Portfolio is Diversified There Will Be Around 50 Or Even 100 Stocks. So Even If One Or Two Companies Performs Bad. The Impact Is Very Less On Portfolio.
The Other Advantage Is. If You Want To Invest In All Nifty 50 Stocks It Will Cost More Than 1 Lakh. But In Mutual Funds Even With 1000 Rupees, You Will Get Exposure To All Of The Nifty 50 Stocks.
Managed By Expertise
Mutual Funds Are Managed By Experienced Fund Managers. So We Do Not Need To Do Any Research Or Study About The Company. And No Need To Follow The News. The Fund Manager Will Do Research And Invests According To It.
So As Most Of The Retail People Don’t Know About Stock Markets. So Mutual Funds Are Better For Them, As They Are Managed By Experts.
If You Are A Small Investor, You May Buy 100 or 200 Quantity Of A Particular Stock And If The Stock Price Increases Your Profits Will Increase. But If The Stock Price Falls. Small Investors Cannot Do Hedging Because Of Lack Of Capital.
To-Do Hedging Lot Of Capital Is Required. But Retail Investors Don’t Have Enough Capital To Do Hedging.
In the Case Of Mutual Funds, They Have a Huge Amount Of Money And They Buy In Large Quantities They Can Always Do The Hedging.
Investing In Stocks : Advantages
If You Are Investing In Stock Market There Will Be DEMAT Account charges Which Are About 500 Rupees Per Year.
But If You Are Investing In Mutual Funds, As They Are Managed By Fund Managers They Charge About 1-2% Of You Capital Per Year. Which Is Known As the Expense Ratio, So If Your Investment Amount Is Big Then The Charges Are Very Huge Compared To DEMAT Charges.
For Example, If You Are Invested 10 Lakhs Then The DEMAT Charges Will Be Just 500 Rupees Per Year. Where As For Mutual Funds The Charges Would Be Around 10 To 20 Thousand Per Year.
If You Are Holding Any Stock And If The Stock Price Increases 10 Or 20% During The Day. You Can Immediately Book Profits From The Stock.
But In Mutual Funds, You Cannot Capture The Intraday Fluctuations. Because In Mutual Funds Whether You Are Buying Or Selling It Is Based On The Net Asset Value At The End Of Day. So It Is Not Possible To Capture The Intraday Fluctuations In Mutual Funds.
Mutual Funds vs Stocks, Where To Invest ?
Invest In Mutual Funds If
- If You Have No Knowledge About Stock Market Or No Time To Do Research About Stocks And To Follow The News About Stock Market.
- If Your Capital Is Small And If You Want To Diversify Your Portfolio.
Invest In Stocks If
- If You Have Knowledge About Stock market.
- Even If Your Capital Is Less You Can Invest. In Stocks, If You Have The Idea, Confidence And Knowledge About The Stock Or Company You Are Investing In. Because You Cannot Invest In Many Stocks If Your Capital Is Less So You Need To Have Know About The Companies You Are Investing And Have The Confidence In It. Or If Your Capital Is Big Then You Can Easily Diversify Your Portfolio Which Will Minimize The Risk.
If You Have Good Knowledge About Stock Market Then you Can Invest In Stocks Instead Of Mutual Funds. Because In Mutual Funds They Charge About 1 To 2 % Every Year. It Will Be a Very Big Amount In Long Term. Or You Can Invest In Some Stocks And In Mutual Fund Also.
Most Of The Investors Who Have Knowledge About the Stock Market They Invest In Both Stocks And Mutual Funds. To Diversify Their Portfolio.
If You Don’t Have Any Knowledge About Stocks Then Invest In Mutual Funds.