I've been doing the SIPs for seven years now and I'm now thinking to gradually start investing in direct stocks. How should I proceed?
- Anurag
Three things are essential for investing in stocks directly. First, you should be interested in knowing about those companies in great detail.
Second, you should have a temperament because the moment you directly start investing into stocks the swings become wilder. In a mutual fund there are 30-40 stocks where you don't get to see the individual movements and because of the diversification advantage these funds are able to nullify a lot of fluctuations that happen in the underlying constituents. Taking direct exposure to stocks makes all the market swings visible and therefore you should have the temperament to withstand the big movements.
Third, you should have the discipline to diversify in more than 15-20 stocks and to spread it over time. One should know when is the right time to buy the stock because there could be a great company but it may be a bad time to buy it or there may be a bad company but very opportunistic time to buy. Doing it gradually helps, say, investing 10 per cent of your money for a period of two years and seeing how it works. Compare the performance of your mutual fund vis-a-vis direct stock exposure. I think everybody should give it a try because it's intellectually very satisfying if you have the time, inclination and the temperament.
This article was originally published on February 12, 2019.
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