Investment is a very tricky subject owing to various instruments available in the market today. You could either invest in shares or go for mutual funds investment, it is totally your call. However, we would be a little biased and tell you that as a beginner, who is looking out for a stable option to invest their hard earned money in, mutual funds investment would be a better and definitely a safer choice.
We know you have worked really hard to earn the money, and hence, it deserves the best treatment.
Before we begin explaining to you about why “Mutual Funds sahi hai!,” let us brief you about the two main instruments to invest your money.
What are Mutual Funds?
This popular instrument of investment is led by professionals, who are experts in this field. These people are generally referred to as fund managers, and they decide whether the money will be invested in shares or bonds. The decision is taken on behalf of the investors and it mostly depends on the type of mutual fund.
Here, a lot of investors’ money is collected to form a pool which is invested in diverse mutual funds. The investment made by the fund managers is diversified enough to cope with any potential losses the corpus might face. The profit earned is shared by the unit holders and the fund managers.
What are Shares?
Through shares, you buy ownership of a company. You might get confused with the terms, shares, stock and equity – you would be relieved to know that these terms mean almost the same thing and have minor difference in their meanings. An organization issues shares which can be bought by any individual, if he is interested in becoming a shareholder of the company. The shares do not involve any third party like the mutual fund managers – which might make one feel independent initially but does involve a lot of risks.
Now, we will cite seven reasons to show you why mutual funds investment is better than investing directly in shares market so that you can make the right choice and invest your money wisely!
1. Mutual Funds are way safer than Shares
Diversification is the ultimate cushion for all the negative returns in the case of mutual funds investment, which is absent while investing in Share market. The fund manager chooses the right stock, bond or securities so that the mixed portfolio formed incurs maximum gains. However, on the contrary, shares have a high risk potential. As they involve only a single stock, there are chances it might do well, but the failure chances stand strong as well.
Statistically, only 10 in 100 shares earn extremely good profits, while the rest do average or suffer great losses. Go for shares only of your risk appetite is really high because stocks are vulnerable to market conditions.
2. Shares need a lot of research and expert knowledge
If you are a novice who has just dived into the world of investing, you might need to do a lot of research if you’re considering investing in shares. You would have to devote a lot of time researching and finding the best company, or else you would need to talk to a financial advisor with a thorough knowledge of the market. Moreover, you need to be well acquainted with the current economy, and how any changes would affect the industry.
While doing mutual funds investing, you have to do just one task – find a good platform and invest. The fund manager takes care of the rest, and you can simply sit back and go about minding your own business. You do not have to worry about investment decisions.
3. You can invest a smaller amount in Mutual Funds
To begin investing in mutual funds, you do not need a hefty sum of money. You can begin with investing a few hundred or thousand rupees through SIP, and that’s about it (You can invest as low as Rs. 100/week in mutual funds). The fund manager handles your time investment here, but in the case of shares, you would have to devote personal attention and prompt trade decisions to be able to continue investing each month.
Not only this, you need a large chunk of money to begin investing in the share market in India to get the best returns. Risking such a huge amount is not a very safe choice, especially for a beginner investor.
4. Tax implications on mutual funds and shares market
If you opt for tax saving mutual funds such as ELSS, you can claim tax deductions up to Rs. 1.5 lacs under Section 80C. However, if you choose to invest in share market, your profit is taxable and you will have to pay 10% of your gains as interest. This might not make a difference for short-term investments but does prove profitable in the long-term.
5. Shares need regular supervision
When you buy shares as an individual, you need to make sure if your money is reaping returns at regular periods of time. You are the sole master of your stock, hence you need to make all your investment decisions.
In mutual funds, the fund manager makes the tasks easy for you. They have a vast knowledge of the domain and are experts in their field. They decide the stock and the duration, and hence, you can sit back and breathe in peace because you know your money is in the right hands.
6. Shareholders need a DEMAT account
If you want to trade in the share market, you necessarily need a DEMAT account. Without a DEMAT account, you cannot sell or buy any shares. On the other hand, mutual funds investment does not require a DEMAT account.
7. Shares are less reliable
Stock prices change with every passing second. Novice Investors generally buy high paying stocks out of greed and mostly end up facing losses due to the price fluctuations. Mutual funds, on the hand, do not suffer huge losses due to diversification.
In the end, it is totally your decision whether you choose to invest in mutual funds or stocks. Whatever be your choice, we hope you reap great returns!
Read this to know how to invest in Mutual Funds