As an individual investor, many of us often get confused when it comes to investment between direct equities or equities mutual funds. One should plan their investments considering the risk and tenure on the financial instrument.
Another important thing is that many individuals fail to consider taxation which will have a large impact on returns.
Investing in equities and equities mutual funds have their own advantages and disadvantages. Here some of the points highlighted:
No personal tracking
There is no need for personal tracking of stocks if you have invested through equity mutual funds, as it is monitored by professionals.
Individuals with less knowledge on stocks or investosr with less time to monitor stocks can consider equity MFs over equities.
Best way to diversify
Mutual funds tend to diversify through various stocks which will decrease the risk if any particular stocks decline.
In equity mutual funds, one can start investing with as low as Rs 500 in a good sector. Whereas if investing directly, one needs to consider whether the stock is really worth investing and can be expensive if one wants to hold more stocks.
Mutual Funds investment can give you a number of options such as Systematic Investment Plans, Systematic Transfer Plans (STP), Asset allocation tips from fund houses etc.
Investing in equity mutual funds will not attract tax if it is redeemed after one year of investment. If you invest directly and sell before a year, a short term capital gains tax would be applicable.
Fees and Brokerage
Directly investing will involve paying of commission on each trade you make. Even in mutual fund investment, they will be a very small management fee for the service rendered.
Evaluating the investment and rebalancing the need is the right way of investing. Investing directly in stocks needs time and the right knowledge to make profits.
An investor with money and knowledge will make profits if he is able to build a well-diversified portfolio. A smart investor who wants their returns to grow safely and beat inflation can consider investing in equity mutual funds.