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Should I redeem my funds and invest in bluechip stocks?
Dhirendra Kumar sheds light on whether investing in bluechip stocks instead of funds is a good idea
Oct 10, 2019
I understand that there are two variants of mutual funds - Direct and Regular. With regular, a part of our profits goes to the advisor/agent. Now if we invest in equity shares through an agent, is there a part of our dividends or profits that goes into the agent's pocket?
Also, I'm a relatively new investor and have been investing through SIPs since two and a half years. Since the first half of 2018, my portfolio has not been performing well. In such a time, how wise or unwise will it be to redeem my SIP and invest my money in bluechips trading at good prices.
To address your first question, when investing in mutual funds through an agent i.e. through a regular plan, the expense ratio tends to be a little higher. When you buy a share, you only have to pay the transaction fee. So unlike with mutual funds, there is no continuous or regular expense which one is bound to pay when buying a share through a broker.
About redeeming your SIP investment that hasn't been performing well since the last year, I would say that it won't be a wise thing to do at this point of time. The benefit of SIPs lies in neither investing large amounts in a rising market nor stopping your investments in a falling market. You won't be able to derive any benefit from your SIP if you redeem it in the falling market.
Deciding on whether to invest in mutual funds or discounted bluechip stocks is a completely different kind of decision. Investing through mutual funds has its own pros and cons. The advantage is that you get automatic diversification and professional management and it helps bring in discipline to your investments. The disadvantage is the higher expense ratio; however, there are direct plans which have lower expenses.
When you buy a share, on the other hand, the only expense is the brokerage. Here, you will have to put in your own research and decide on specific stocks you want to buy and the appropriate time to buy them.
Having said that, to be able to directly invest in equity, one has to have three things - time, inclination to understand companies and not invest on the basis of stock tips, and the temperament to be able to stick to your convictions and strategies and not get affected by volatility. It is not easy to maintain your temperament - many people redeem funds in a falling market and on seeing a rising market, even new investors easily end up investing large amounts.
So to be able to take such a decision understand the kind of investor you are and only then proceed.