Equity investment (stock market) has been one of the most rewarding investment instruments. However, it is the most unpopular investment medium as far as retail investors are concerned. Your first reaction would be - because it's so risky. It is true, direct equity investment is extremely risky. That is one of the reasons why most of the investors who want to invest in equity usually take the mutual fund route. That's a smart thing to do. The nature of the stock investment is so complex that mostly it ends up confusing investors while mutual fund investment is simple and hassle-free. But it's also a fact that if you do your stock investment right it can outshine mutual fund or any other investment medium for that matter, by a huge margin.
Let's first try to understand why people invest in mutual funds instead of stocks.
There are numerous reasons why investors take a safer path to wealth creation, one of the principal reasons is that majority of the people have several misconceptions about equity investment. There is a popular belief amongst investors who are not familiar with the facts of the stock market that it is a place for gamblers and fixers and putting money there is as good as kissing it goodbye. To some extent, this apprehension is true. We can't completely rule out the possibility that money evaporates in the share market. Future & Options (F&O) trading is more than capable of eating up your money without a trace. Opposite to that, in mutual funds, the money is under the supervision of highly qualified fund managers who work on a well thought out investment plan.
It will be safe to assume that the fear of losing money is the main reason that holds many investors back from investing in equity. The good news is that there are ways to reduce risk and make it as safe as the mutual fund.
Why Should You Invest In Stocks?
The mutual fund investment is considered safe, nevertheless, when compared to returns of direct equity investment, mutual fund or any other investment instrument is no match to direct stock investment. In the year 2017 alone, Nifty & Sensex gave average 30% returns. This is just the average of 50 bluechip stocks. Nifty midcaps performed even better. They enjoyed a golden run as many of the mid and small cap stocks delivered as good as 300% returns in the period of 1 year.
As midcaps performed well even mutual funds in the midcap equity segment have performed well but even the best performing funds haven't managed to give more than 35% returns. It simply means that direct equity is a far more rewarding than mutual funds.
Now that we have understood the pros and cons of both the sides let's try to understand the ideal way of going about your equity investment.
So Where Should Your Money be - Mutual Fund Or Stocks?
It's a no-brainer - it's EQUITY! As we have learnt that event the best equity fund of last year didn't give more than 35% returns, on the other hand, some stocks have given as high as 1200% returns. There is no competition between these two whatsoever.
Stock investment has the potential to bring you unimaginable wealth. People choose mutual fund over equity to avoid the complexities of the stock market. In that way, a mutual fund is an easy and hassle-free route which doesn't require you to keep track of the performance on every day. In equity, you have to find stocks with good fundamentals and have to keep track of their performance from time to time.
It's difficult for a person from a non-financial background, to understand the nitty gritty of the stock investment. For such investors, who want to be a part of the equity but lack knowledge and experience an stock research firm becomes the best options. A good research firm gives stock calls with precise entry and exit points and makes stock investment as easy as mutual fund.
Source: Mutual Fund Investment