Skip to main content

Are Mutual Funds better than stocks?

How safe are Mutual Funds?

Just like any other financial instrument, mutual funds are not without risk. When defined in terms of chances of losing money, the risk in mutual funds is no different than that present in other financial instruments. Still they are relatively safer and a more convenient way on investing.In mutual funds, you can control risk by choosing a fund that suits your risk profile. On the other hand, picking stocks individually that will both meet your objectives and match your profile can be tough.

A mutual fund portfolio is easier to monitor than equity shares. They also come with less systemic risks. They offer quick liquidity. Most private mutual funds can be redeemed in three to four working days. This too cuts the overall risk associated with investing, often not so visible and hence not accounted by many investors. But the market risk or the risk that exists due to economy-wide factors remains. And there is always the possibility that a fund fail to stick to its pre-determined objectives or invests in securities that alter its risk profile. In which case, the blame goes straight to the fund manager and the Asset Management Company (AMC), which manages the mutual fund.

What advantages do mutual funds offer over equity stocks?


Here are a few considerations :


Diversification : Most mutual funds spread the money over a number of shares depending on the fund size. This lowers the risk from an investment loss in a few shares. Even if any one or two shares were to under perform, their impact on the NAV may be only restricted to their proportion of holding. You can't get much diversification from buying equity shares of a company, unless you buy into a conglomerate.

Systematic Investment Plan : Small sums (starting from Rs 500) of money can be invested monthly or quarterly. A plan for systematic withdrawals is also available from some funds.
Easy entry and exit : Filling a mutual fund application or a redemption form, even online, is all that it takes while entering or exiting a mutual fund. But with equity shares, you need an account with a stockbroker (for buying & selling) and another with a depository participant (which maintains your shares in an electronic form). Some investors may find this cumbersome.

Reinvesting dividends : Funds provide for automatic reinvestment of dividends. In India, this facility is not so far available with equity shares.

Tax benefits : Equity linked savings schemes are covered under the overall limit of Rs. 1 lakh under section 80C.

Professional management : When you are investing in a mutual fund, professionals with experience in fund and portfolio management take care after your money. They are also supposed to monitor the economy and the stock markets to change the portfolio accordingly.
Unless one is ready to dedicate considerable time and effort in stock investing, it is better to invest through the mutual fund route.

Comments

  1. i am just asking for the point 'Professional Management'

    How can one say, it is professionally managed. Look for Dynamic Funds in many AMCs. Like HSBC Dynamic and ICICI Dynamic. These fund has mandate to invest 0-100% in equities and 0-100% in debt. When market is falling from Jan'2008, none of the fund managers has reduced their exposure to equities. They reduced the exposure from Sep'2008 onward, when the market touched the bottom. most of the AMC has not decalred dividends during that period.

    Is it "Professionally Managed"? Don't go for bookish/theoritical knowledge.

    There are so many instances of manipulations, like so many funds has shown a good recovery in bear market. Again this is for the sake of collection of AUM in those funds. Whenever, these funds gets a satisfactory AUM, they stop performing.

    ReplyDelete
  2. Manish, as long as funds outperform the markets in a positive manner, no complaints.Some of them have clearly outperformed, but over a longer period of time.

    ReplyDelete

Post a Comment

Popular Posts

Your Bill Amounts Are Going To Increase From June 1, 2016

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. Union Finance Minister, Arun Jaitley, in his budget announcements proposed to impose a cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The present rate of service tax will be hiked to 15 per cent from June 1, 2016, from 14.5 per cent. Take a look at what gets expensive:



Phone Bills: Your phone bills are going to go up. So, pay a good 15 per cent now on service tax on phone bills.

Restaurant Bills :If you are dining in a restaurant that already has service tax applicable, you are going to pay more on your eating out. Though 0.5 per cent on a single bill may not mean much, frequent diners may end-up paying a lot during the year.

Travelling: You will have to pay more for air travel, as there is a service tax on tour operators and travel agents.

Moneycontrol Terminal - Streaming Live Quotes

Moneycontrol has introduced a new feature Moneycontrol Terminal - an enhanced version of real time price updates. Though there were live quotes provided by the website previously, the present form  gives a better update of live quotes of indices and stocks.

This terminal provides live streaming quotes for both NSE and BSE free. It also provides quotes for most of the indices and also the constituents/stocks of the indices in BSE and NSE.  The terminal also provides live news and other market news, which might be useful for traders. The hardware recommended is minimum of 1 GB RAM.

It would be better if stock of any choice could be added ( market watch of a set of stocks ), which would be easier to track one's trading positions. Anyway, this is a better alternative for people who don't have access to any trading software, to view live action of the markets.




You could just try the same here at Moneycontrol Terminal


NSE Level 3 Data

Before we get into details of NSE Level 3 Data, it is important to first understand the basic operations of the stock market.  All publicly traded equities have a bid price and an ask price when they are bought and sold. The bid is the highest price a trader( or an investor) is willing to purchase a stock. The ask is the lowest price in which he is willing to sell a stock.


Depth of the Market(DOM):Looking at a Level 1, Level 2 or Level 3 quotes can give a trader, a basic idea of how a stock is performing at any given time.

Level 1 Market Data provides the basic market data which includes Bid price, Bid size, Ask price and Ask size.

Level 2 Market Data provides more information than Level I data. Mainly, it doesn't just show the highest bid and offer, but also shows bids and offers at other prices. Now level 2 provides market depth data upto 5 best bid and ask prices.

Level 3 Market Data provides market depth data upto 20 best bid and ask prices .  This primarily used by brokers and ma…