VR Logo

Stocks or Mutual Funds

Which is a better investing route? Investing directly in stocks or through mutual funds?
-Nitin Kumar

Which is a better investing route? Investing directly in stocks or via mutual funds?
Nitin Kumar

You need to first figure out what kind of investor you are and the degree of risk you are willing to undertake. If you are an aware and educated investor who takes the time to analyse a company before investing in it, then you can definitely look at creating a diversified portfolio of stocks. While this in itself should not be very difficult, it is a time consuming exercise. Moreover constant monitoring of stocks and related company news is imperative.

On the other hand, mutual funds offer many benefits that would be difficult for an individual investor to replicate. Access to relevant information, a research team, low cost of fund management, are some of the benefits which are not accessible to retail investors. For instance mutual funds do not pay capital gains tax, whereas individuals do incur a short-term capital gains tax amounting to 10 per cent. Further, the degree of diversification that an individual can attain is limited, which in turn translates into higher risk undertaken by an individual relative to a portfolio of mutual funds. For instance, it is not unusual to find a mutual fund holding 60 odd stocks. An extensive exposure across sectors and monitoring such a large number of holdings would be difficult for an individual to achieve. Investors, who have the acumen and time, should look at maintaining a portion of their portfolio in direct stocks. For the rest, sticking to mutual funds would be a better idea.

Post Your Query