There is a lot of difference between investing in the stock market and in equity mutual funds.
1. Analysis and Risk Management: Mutual Funds do invest in the stock market but they have a team of analysts headed by fund managers who work round the clock managing the portfolio and the money.
When we invest in the stock market, we rely on news, tips and maybe some amount of research. Most of us don’t have the expertise to study the risk and analyse.
2. Active Management: Mutual funds do not require active day-to-day involvement. You can track your investments as and when you have time. They are not as volatile as the market.
The stock market on the other hand requires day-to-day active involvement. Also, it’s difficult to take out time, manage your holdings and book the profit at the right time.
3. Diversification: The key thing to keep in mind while investing is diversification. While investing through mutual funds you get access to ready-made diversified portfolios. Diversification does not eliminate risk but minimises the risk while keeping your returns intact.
For example, the fund you have chosen has its share in 10 stocks. Even if the stock price of 2 companies go down, there might be 8 companies whose stock prices are up. Hence, you make up for your loss and you are actually in profit overall.
Whereas while investing the stock market, the chances of suffering a loss are high as you have invested most of your money in one or two stocks.
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