It is a time and again proven fact that long term investment in Top Equity Funds are among the best ways to achieve your long term Financial goals. They are also the best way of beating inflation. For investing in the equity market, investors have two methods to choose from. One is by investing in Mutual Funds and the other is directly jumping into the stock / Equity game in the open market.
What’s the difference?
Mutual Fund – People with common financial goals invest together in a product via a fund manager. Which means, pool of money collected from the investors of common interests and invested in Stocks and securities by professional fund managers and their teams as to generate higher returns.
Stock/Direct Equity – stocks represent ownership in a company, which indicates that the person who buys the share is a partial owner of that company, however, with no benefits of an owner!
Now that we know the difference between Mutual Funds and Stocks/Direct Equity, which one is better?
The answer to this lies within investors decision making methods.
However, ProsperX has listed out a few Top Mutual Funds for your reference.
We at ProsperX believe that a few factors must be kept in mind while making an investment decision.
They are –
- Your Research – To invest in the share market, investor needs to be highly knowledgeable and well-studied about the market in order to take an informed decision which requires a lot of time and energy. If the investor is in a position where he can invest that amount of time to study the stock market and also continuously monitor it, he can invest in stocks and be sure of returns.In case he doesn’t, the investor can invest in Mutual funds where this responsibility is taken care of by the fund manager.
- Your Expertise in the market – Investments are something which can’t be managed by laymen. People spend their lives understanding about investments and stocks and mutual funds. just having the information is not enough. You also need to be able to analyze the information to make decisions which would benefit you. In the case of Mutual funds, the fund managers have an access to research material of high quality and their experience in the market makes them well informed to take beneficial decisions.
- How much to invest – The amount of time you spend in studying the market push you towards expertise. However, if you want to invest a small amount say 10 thousand, would you look at all the companies and their performances for the past so many years? it’s not practical and so mutual funds are a better mode of investment for people who want to play it small. Mutual funds also offer SIP which lets the investors invest periodically little by little.
- Your control on the money you invest – Having control over your investments or not is a complete individual choice. If you want control of your own investments, you must go for the stock market play. However, if you are okay with your investments being managed by a professional fund manager, Mutual funds is the right scheme for you.
- Your strategy of investment – In crisp way, Strategies are the way you invest. That is either SIP, STP or SWP. Another aspect to strategy is management of portfolio as per different strategies like growth and contrast. An added advantage of mutual fund investments is that they provide facilities like dividends and dividend reinvestment. Which is not in the case of stocks.
- Your ownership desires – ownership desire is directly relevant to stocks only. When you buy a stock or a share in the market, it means you partially buy the ownership of the company and share the losses and gains of the company like the owner does. However, in mutual funds, ownership is not given as the stocks are held by the investors but indirectly. That is not one to one but through a mediator.
- How would you transact and trading charges? The main trading charge to an investor is the Annual expense ratio. However, there are other charges like Demat and brokerage but then those are transaction charges. If you see, mutual funds have a huge investment volume involved and as compared to that, the transaction cost in it is minimal. However even if you invest individually, you will end up paying lots of brokerage charges and commissions as well as capital gains in every transaction that you make.
By looking at all the above factors we conclude by saying that both methods of investments have their own Advantages and disadvantages. However, for people who don’t have adequate time and knowledge of the equity market, we recommend them to make investments in mutual funds because of the listed below advantages or plus points.
We at ProsperX wish you all the best for your investments.
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