Mutual Funds vs Stocks:
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 investing in stocks. Still they are relatively safer and a more convenient way of investing.
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What advantages do mutual funds offer over equity stocks?
Here are a few considerations :Diversification.
If you have only 1,000 to 5,000 to invest, the money will not buy many shares of a single stock. By investing in only few stocks, one of them may not perform well. This in-turn affects your portfolio performance.
Instead, when you invest similar amount in a mutual fund, your fund's portfolio may have 50 to 100 stocks. If one or two stocks doesn't perform well, your portfolio is less affected, because other stocks in the portfolio may perform well.
Professional Management.
Managers of stock mutual funds have instant access to information about every stock in their portfolio, whereas individual investors have limited access to such information.
Systematic Investment Plan.
Small sums of money can be invested in mutual funds, whereas SIP in stocks cannot done with small amount of money.
The only disadvantage in investing in a mutual funds is that you depend on the fund manager to make the right decisions regarding the fund’s portfolio. But, there are many funds which are out-performing consistently.
You might want to check out the Top Performing Mutual Funds.
Unless one is ready to dedicate considerable time and effort in stock investing, it is better to invest through the mutual fund route.