How Equity Knocks Out Mutual Funds

Mutual Funds vs Stock Investment

Retail equity investment simply means direct investment in stocks. According to the figures available, retail investors hold around 20% value of the total equity market, while MF, also known as institutional investment, hold about 3% value in the market. Stock market is a platform where companies borrow capital from the investors. The shareholders get to directly invest in a company and become a stakeholder of its success or failure.

On the other hand, for last two decades MF have become very popular. For many people who don’t want to invest directly in equity market, this medium is the ideal choice. Such is the penetration of this financial instrument that it features in almost all the investment plans of the working professionals. The reason they are looked at as an alternative to stock investment is that the money you invest in mutual funds via bulk investment or SIP (Systematic Investment Plan) is eventually invested in stock market. The funds are managed by the experienced fund managers who ensure that funds are placed in the best companies and fetch the best returns.

So, Which One Is A Better Option?

Mutual Funds

As we already mentioned, both the instruments have their own set of challenges. Let’s look at the challenges of Mutual funds first. Though mutual fund is considered the smart investment option, compared to the returns of direct stock investment, it falls way too short. Based on the historic data, the average return you get in mutual funds is around 13-15%, which is not bad. However, in the light of stock market’s uncapped growth, it certainly looks rather dull.

Also, the fate of your money heavily depends on the skills and expertise of your fund manager. It takes a good fund manager to get the best results, but that’s not the point. The point is you don’t have any control over the allocation of the funds.

Equity (Stock Market)

Stock investment is considered the most dynamic investment instrument. Stock market, in terms of returns, can easily qualify as the best investment instrument. But unfortunately it’s not that simple. In equity investment investors have to bear a reasonable amount of risk. Furthermore, the returns depend on choices you make. And there is an ocean of stocks to choose from. For rookie investors it can be quite baffling.

To safeguard one’s interest one can opt for options like portfolio management service or stock advisory firms. They do all the research and analyse on your behalf and recommend the best stocks to buy on the basis of stocks’ profit potential. Their key quality is to identifying undervalued and multibagger stocks and to provide share market tips.

Conclusion

As both the mediums have their own pros and cons, investors have to choose the medium which best suits their requirements. In terms of returns stock investment certainly fares better than mutual funds. With the aid of good stock advisory firm it is also possible to play safe and minimise the risk to a great extent.



Source by Praveen Kedar

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