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MFs: The Wiser Option

My friends have advised me to invest directly in stocks rather than through a mutual fund, to avoid loads and expenses. I feel that I can do that with the help of your website. What do you think?
- Gagan Khosla

My friends have advised me to invest directly in stocks rather than investing through a mutual fund, as the loads and expenses make funds costlier. I feel that I can do that with the help of your website. At Value Research Online, I can compare the performance of the funds to identify the best performing ones and then simply look at their portfolio details to identify the stocks which I need to buy on my own. By doing this, I can avoid the expenses of mutual funds. What do you think?
- Gagan Khosla

Portfolio of a fund is not static, but it keeps changing. A fund manager forms a view over a company and invests in it if he finds it investment worthy. But once his targets are met, or due to any other reason if his view changes, he exits the stocks and looks for other options.

Therefore, keeping a close track of the fund's portfolio on an individual basis and trying to closely follow the fund manager is bound to be a tough task. You will only get to know about the actions of the fund manager after a gap of one month, when the portfolio disclosures are made. And if markets change drastically during that period, then you might end up getting stuck with stocks which the fund manager would have already exited. In the light of the recent steep market decline, this is not hard to imagine.

Apart from being tough, it will also consume a lot of time. Being convenient and hassle-free are two of the important elements of investing and you would be surely missing out on both the fronts. An individual should allocate his time to investment decisions in proportion to what they contribute to his income. If trying to follow a fund manager starts eating up the time from your primary occupation, then it may not be worth it.

A fund manager has the muscle of crores of rupees through which he can build a diversified portfolio. An investor in his individual capacity may not be able to build such a portfolio due to lack of such a huge investment amount, and hence lack diversity.

Lastly, we don't think mutual funds are alarmingly expensive so as to deter you from investing through them. In fact, you have missed out the fact that when mutual funds buy and sell stocks in their portfolio, they do not have to pay any capital gains tax. But when you will churn your portfolio in your individual capacity, you will have to pay capital gains tax at the rate of 10 per cent.

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