DIRECT EQUITY INVESTMENT Vs MUTUAL FUNDS

DIRECT EQUITY INVESTMENT Vs MUTUAL FUNDS

There are various benefits of investing through mutual funds which may not be available if one invests directly in shares.

Creating wealth is an exciting proposition but the process of creating wealth requires skill, knowledge, time and the ability to stomach risk. Investments, may they be in direct equities or through mutual funds have their advantages and disadvantages. However, direct equity investing, though perceived as more dynamic by investors, is feasible only for those investors who are able to understand the working of equity markets and have the time to track it regularly.

However, how about those investors who are not equally skilled and committed in terms of devoting time and energy towards their investments? For such investors, the best option is to choose the indirect route by investing in mutual funds (MFs).

There are numerous benefits of investing through mutual funds which may not be necessarily available if one invests directly in shares. These include ……

Professional Management

Individuals may not have the necessary skills to identify the right stocks. Sometimes they cannot dedicate their time to do research. Mutual Funds offer investors expert hands at work that aims at achieving investment objectives of the scheme.

Low Ticket Size

As some shares quote at very high price, they remain inaccessible for small investors. However one can start in mutual funds which invest in various such stocks with as low as Rs 500.

Economies of Scale

The portfolio of an individual is relatively small as compared to a mutual fund portfolio. This leads to costs eating into returns for individuals. However on a large portfolio, mutual funds end up reducing costs.

Fees and Expenses

For their services, mutual funds charge fund management fees and expenses which are capped under their regulations.

Liquidity

Open-ended funds allow investors exit at the prevailing NAV subject to exit loads. This helps in financial planning. When an individual invests in shares, he is not sure if he can sell the shares in the market at fair value.

Risk Management

An individual may get carried away due to sentiment and may go overboard on a particular stock. However a fund manager cannot do so, since there are many risk management guidelines in place. There are limits on how much a fund manager can invest in a particular share is backed by strong research conducted by himself and his team members.

Choice of Funds

Investors can choose to invest in a scheme that suits their investment needs. For example, an aggressive investor may choose to invest in a diversified equity fund, wheras a bit less risk taker may opt for balanced fund. There are funds catering to almost all needs.

Taxation

 When an individual investor buys and sells shares before completing one year, he ends up paying short term capital gains. However the fund managers may keep transacting in shares at varying intervals. If investor remains invested for more than one year in an equity fund, his gains are tax free since securities transaction tax (STT) is already deducted.

 

Happy Investing