Equity investments are often considered to have the highest return potential, yet there is a high risk associated with investing in them. This is because of the fact that stock prices tend to fluctuate regularly, and even with the best of tools, they could behave beyond anyone’s expectation. But that doesn’t mean investing in them is a bad idea. If fact, if you have the expertise to manage your portfolio with constant monitoring, it could become highly beneficial.
But what if you don’t have the time for that? Then, a mutual fund could come into use. But which option is better here? Let us find out.
Investing in stocks directly
A successful stock market investment usually has four steps. This could span over decades, depending on the strategy, but the steps remain the same irrespective of the time horizon.
● The first step is identifying the stocks to invest in. Fundamental analysis is your best friend here. It helps you understand different companies in detail and see if there is potential in investing in them. The documents related to the company, such as quarterly and annual reports, news regarding the company etc., are your sources of information here.
● Once you find the right stocks to invest in, you have to find a perfect point to invest in. This is often called an entry point. This is when the price is at such a level that there is potential for growth. Buying the dip is a strategy many use here. Basically, they look for times when the stocks are performing poorly but have the potential to grow.
● Then comes the monitoring part. Regular monitoring is necessary to make sure the stocks are performing according to your expectations.
● Finally, it is time to find the right exit point. This could be a day from investment or even a decade, depending on your strategy.
Investing in mutual funds
The above-mentioned steps may be difficult or time-consuming for some investors. Mutual funds then make a good alternative to investing in stocks.
Mutual funds are an investment option where investments are made according to a portfolio based on the fund’s theme. These are managed by experienced fund managers. So, it helps you skip the first step. Here, instead of picking several stocks, you just need to pick one mutual fund according to your risk appetite and investment goals.
For instance, if you are a risk-averse investor, instead of looking for several low-risk stocks, you could find a low-risk mutual fund to invest in.
The monitoring part is also taken care of by the fund manager here. In the case of a regular mutual fund, the manager ensures the portfolio keeps giving the best value to investors through regular intervention.
Then your job is limited to finding the right point to invest and divest. But if you are choosing a SIP option, this could become unnecessary too.
Stocks vs mutual funds – which is better?
Both are beneficial investment options, and the choice is usually according to your investment needs. Below are a few factors you can use to gauge.
● Risk and returns – mutual funds tend to be less risky as the portfolio is often diversified. But at the same time, stock investments have better return potential.
● Expertise – Stock investments could demand much more expertise from you than mutual fund investments.
● Time – Stock markets could demand more time for investing and monitoring.
● Say in the investment – Stock market investments tend to give you more say in your investment. Fund managers make the decision in the case of mutual funds.
While both options are beneficial, it is important to understand what works better for you and invest accordingly. Follow the above pointers to ensure you make the right decision.
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