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Mutual Fund Investment and Share Market Investment, both are a market-linked investment that invests in stocks and shares of different companies and yields good returns for investors. Well, as the market touches new highs, people's interest is growing more towards participating in the equity market, either by investing in Equity Mutual Funds or by investing in Share Market.
However, experts advise, if you are young, have less knowledge about market trends and volatilities, and are novices in the investment sector, then do consider investing in mutual funds instead of investing in the share market.
Here are some reasons that clarify why mutual funds hold a little edge over the share market in terms of investment when it comes to individual rationality.
Portfolio Diversification Help Reduce Overall Risk………
Mutual funds offer the feature of diversifying your portfolio, simply not concentrating your investment in a particular stock. Mutual fund schemes invest in various kinds of stocks, simply they follow a mixed-asset allocation strategy. Thus, they successfully mitigate the losses if one or two stocks won’t work or incur losses.
But a similar case is not with direct investment in the stocks or share market, one won’t invest in more than 10 stocks on an average, thereby linking big risks on his investment in case of volatility.
Thus, novice investors must go investing in mutual funds that will help them diversify their portfolios and reduce risk from their investment.
Mutual Funds Offers Disciplined Investments………..
Systematic Investment Plan, also popular as SIP in Mutual funds is the prominent feature that attracts investors more. SIP is simply a systematic and disciplined approach to invest in mutual funds. You need not arrange a big sum of money to invest in mutual funds, instead, you need to route your monthly savings directly from your bank account to mutual fund schemes, through automated SIP.
Now Mutual Funds offers a wide range of schemes suitable for all your goal kinds, Equity Funds for long-term investment, Debt funds for a short-term investment, Hybrid funds for mid-term investment, Liquid fund to create an emergency fund, and almost for all your goals.
Depending upon your investment horizon, you can go for either equity funds, debt funds, liquid funds, or corporate bond funds. You can also take the Systematic Investment Plan (SIP) route.
However Systematic Investment Plan is not offered by the share market, also in case you look towards investing in the share market, you need to first open a Demat account, you cannot invest in the share market with your savings account.
Mutual Fund Scheme Offer Tax Benefits……….
ELSS (Equity Linked Saving Scheme), simply a tax-saving mutual fund scheme that offers tax exemption benefits as per the Income Tax Act. ELSS falls under the category of Section 80C instruments, that help an investor save tax on his investment returns. e.g., Equity-Linked Saving Scheme wherein deduction of up to Rs 1.5 lakh per year is available.
No such benefit is available in direct stock investment and one has to pay certain charges like STT, dividend distribution tax, capital gains tax, brokerage charges. However, in the case of mutual funds also, an investor has to pay fund management fees.
Mutual Fund Investment Is Managed By Professionals……….
Mutual Fund Investments are managed professionally by a team of financial experts, or fund managers. These professionals are highly dedicated to making your investment experience a smooth one and manage your assets in such a manner that they can yield good returns.
They do a lot of research on various stocks and then identify and pick up such select stocks that are more profitable or those that signify growth shortly. They study the financial statements and other necessary information about the companies and are well-versed with the risk management process.
While on the other hand, in stock market investment, the research and analysis of different stocks and pick out the winning stocks to invest in, all this part is carried out by the investors himself. That is the reason why the task of identifying, analyzing, and evaluating risks isn’t a beginner’s cup of tea. And because of this only, it is advised to a novice investor, prefer investing in mutual funds instead of share market.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).