One of the top most questions that comes in each and every investor’s mind is among investing in mutual fund scheme or direct equity, what should he or she opt for?
Let’s try to answer this question in this article. An equity mutual fund comprises a basket of stocks actively managed by a professional fund manager. However, it is very important for you to understand the fact that investment in a single stock is not equivalent to that of investing in a mutual fund. In fact, you can say investing in a basket of stocks can be comparable to investing in mutual funds.
Before we start comparing investing in direct equity stocks and mutual funds, one important thing to remember is that both investment avenues have a risk element. However, mutual funds are considered less risky compared with investment in stocks. Mutual funds provide you with diversification across stocks and sectors. This ensures that you risk is well-spread. When it comes to direct stocks, you might face certain limitations simply because you may not have the required research or familiarity with certain companies or sectors.
Mutual funds are a passive investment for the investor, which are actively managed by a professional fund manager. However, direct equity investment requires active management from the investor. From a cost of investment perspective, investing in stocks works out cheaper than investing in mutual funds. The brokerage that you pay when you buy a stock is much lesser than the fund management fees that you would pay while investing in a mutual fund.
Direct equity investment is well-suited to investors who have skills and knowledge to pick stocks. Moreover, these investors will often tend to have access to stock market research and data, which will help in taking stock calls. More importantly, investors in direct equity must ensure that they have the time to manage their equity investments on a daily basis.
Most first time investors or people who are not familiar with the stock markets generally prefer mutual funds. That said, irrespective of whether you want to invest in mutual funds or direct equity stocks, you can always appoint a professional stock broking agency. Some of the major benefits of having a professional broker handle your investment include proper financial planning, diversification strategy, timely stock market tips, recommendations, advisory, research, and much more.
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