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Mutual Funds or Direct Equity Investments?

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Many new investors are confused whether they should choose Mutual Funds or Direct Equity Investments? We will have a look at some of the factors which make Mutual Funds a wiser choice of small investors.

Direct Equity Investments is a challenging task because of the following reasons:

  1. Selection of equity shares is an arduous task requiring extremely good knowledge about the financials of various Companies and the ability to analyse that information.
  2. It requires the ability to assimilate and analyse the information about the industry in which the company operates as well as the Economy.
  3. It requires a significantly large amount to invest as compared to mutual funds.
  4. Diversification is possible only if the investor can invest a very large amount running into a Crore Rupees atleast. Unless diversification is done there is a significant risk to the portfolio.
  5. The investor has to regularly monitor and track the Companies in which he has invested to know when he should exit the investment.

The following factors make mutual fund investments a better choice for most investors:

  1. The minimum investment amount is low running into a few thousand rupees only.
  2. Professional managers manage the Investments on behalf of the investors. The portfolio management cost is low.
  3. Diversification of investments is possible even with a small amount as a mutual fund pools together the Investments of multiple Investors.
  4. Selection of mutual fund schemes is much easier than selection of stocks.
  5. It is possible to invest a small amount every month in the form of SIPs.
  6. It is much easier to monitor and track a portfolio of mutual funds as compared to a portfolio of stocks.
  7. Investors can liquidate their investments at any time and don’t have to wait for the right opportunity.

New Investors must read newspapers like The Economic Times and magazines like Mutual Fund Insight and Wealth Insight to increase their grasp of Investment concepts. They can also acquire a certification in Mutual Funds and Stocks from National Institute of Securities Market (NISM) to develop profound knowledge about how to invest in Mutual Funds and Stocks. Taking these steps will help you to decide if you should invest in Mutual Funds or Direct Equity.

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