Skip to main content

Choosing Between Mutual Funds And Stocks

Are Mutual Funds better than stocks? 

That's the one key question comes to everyone's mind who wants to invest in stock markets! Let's look at different aspects of investing in mutual funds  and  investing in stocks directly, and then come to a conclusion.

investing

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.

What advantages do mutual funds offer over equity stocks?


Here are a few considerations :

Systematic Investment Plan : Small sums (starting from Rs 500) of money can be invested monthly or quarterly.  Nowadays SIP in stocks is available via various online trading platforms, but you cannot invest as low as Rs.500 in stocks, if the price is above that value.

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

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 Net Asset Value may be only restricted to their proportion of holding.

Whereas, if you have a small capital,  the money will not buy many shares of a single stock, and it will certainly not buy many different stocks. By putting your money in only two or three stocks, you are exposed to the possibility that one of them will plummet in price, wiping out much of your invested capital.

Now as we see the markets are quoting at historical highs, NSE Nifty at 10,400 and BSE Sensex at 33,000, many stocks are trailing way below their all-time highs.

The conclusion is, unless one has the required expertise and is ready to dedicate considerable time and effort in stock investing, it is better to invest their money through the mutual funds.

Comments

  1. […] management is concerned. TRI would give the actual picture of what exactly he or she earns from a mutual fund […]

    ReplyDelete

Post a Comment

Popular posts from this blog

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.

What is Gold ETF - Gold Bees, Reliance Gold,Kotak Gold

What is Gold Bees or Gold ETF?

Gold ETFs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investors' holding will be denoted in units, which will be listed on a stock exchange.They provide returns that would closely track the returns from physical gold in the spot market.

An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.Presently there are many Gold ETFs traded in NSE India. Some of the listed Gold ETFs are GoldBees,Reliance Gold,Kotak Gold,UTI Goldshare



Why choose Gold?
Gold holds its own in any investment evaluation on its strengths as a hedge against inflation, value in the event of political uncertainties and its traditionally negative co-relation with other asset classes such as stocks, fixed income securities and commodities.

The value of goods and services that gold can buy has remained stable unlike currencies that have seen significant…

What is NIFTY BEES - ETF?

NIFTY BEES - is the first ETF (Exchange Traded Fund) in India, which seeks to provide investment returns that closely correspond to the total returns of securities as represented by the S&P CNX Nifty Index. It gives you the most diversified exposure at lowest possible unit size. Approximately value of Nifty bees will be 1/10th value of the prevailing Nifty price.

ETFs are one of the latest financial innovations and any new concept takes time to be known widely. Globally it took more then five to seven years before it could be of any significant size. In India, it was introduced with Rs 21 crore in size , a fraction of the mutual fund industry, it has come far with more than Rs 700 crore in size with six ETFs.




The Nifty BeES also scores over other index funds due to its low tracking error and expense ratio, apart from easier tradeability as it is listed in the NSE. One can also consider doing an SIP in Nifty BeES.

Some of the reasons to invest in Nifty Bees : Investing in Exchange …