Whenever you open any business magazine or hear a business television channel, you will see people recommending mutual funds to investors. On the other hand, you will also find direct stock investing being recommended by many technical analysts. So, as a retail investor, where should you invest your hard-earned money? Let us know about this in detail in the next section.
Stocks vs Mutual Funds: Which is a Better Option?
Mutual fund investments have given great returns to many investors over the years and so have stock investments. But, if you are a person who does not have much knowledge of the stock market, then mutual funds might be the right investment option for you. All those people who are interested in the markets, but do not have the time to keep a track of them and manage their investment portfolio themselves should also go for mutual funds.
Direct stock investing is for those who are professional stock market traders. These traders have the technical knowledge of stocks, their charts and can predict their future prices based on intensive stock research. So, for people without a background and experience of the stock markets, direct stock investing can make a huge capital loss. Mutual fund companies on the other hand have a qualified, experienced and talented team of experts and technical analysts who take wise decisions and invest your money in high gain stocks as well as those with medium gain but less risk. Mutual funds invest the investor's money in stocks of companies in different sectors of the economy such as banking and finance, automobiles, aviation, telecoms, infrastructure so that they can average out the risk for when a particular sector under performs the broader market. Investment is made at prices which are attractive to gain an entry so that investors get a good benefit.
Mutual funds are of different types - the high risk high return ones, medium risk medium return ones and the low risk, low returns ones for defensive investors. Some mutual funds invest in large caps and mid cap stocks, while some others invest in small cap company stocks which have a better future. There are also the diversified funds which invest in large caps as well as midcap stocks. You have the freedom to choose a fund as per your needs, financial strength and risk taking capabilities. After that, you do not need to keep a track of the markets and yet get better returns on an annual basis. A good mutual fund can easily give returns in the range of fifteen to twenty-five percent to investors.
Before investing in mutual funds, you should educate yourself about the way of functioning of the mutual fund industry. Search several websites and find out which mutual fund companies have given consistent returns to investors over a time. Especially, check the performance of the mutual funds in the times of crisis such as economic recession. You can also consult some financial planning experts and ask them to help you on your fund selection. Considering the increasing response of investors to the mutual funds, many companies are coming up with exciting offerings and hence you should take advantage of them. The governments across the world have also relaxed many norms regarding applying for mutual funds.
Direct stock investments and stock trading can give more monetary benefits than mutual funds if done in an organized manner. So, you can go with this option if you have faith in your abilities. Hopefully, this article has guided you in the right direction. So, take a good investment decision for a promising future!
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