Investing in stock markets directly requires sound expertise. Mutual Funds, however, make investing in stock markets simpler for you as they are managed by professional fund managers.
High return on investment is one the key aspects that an investor looks for while investing money. However, balancing the risk is another important criterion that restricts the investor to venture into unknown investment products. So, maintaining an appropriate mix of risk and return is important for a stable investment portfolio. People normally look at equity-related investment instruments to earn a high return so that financial objective can be achieved with lesser effort.
Direct Investment In Stock Market
Shares are one of the most popular investment instrument which is often used as a tool to maximise the overall return. However, you need to possess a thorough knowledge such as fundamental and technical analysis to understand stocks’ trend in short and long term. The return from direct investment in stocks could be huge if it performs as per expectation, but at the same time, you may lose the principal if the stock performs against the expected trend. You need to watch your stock investment portfolio regularly and stay updated with the news that may impact the stock market. Also, sometimes stock market may not perform as per expectation so you may need to wait for a longer period to get an appropriate return.
Timing is important when you invest in the stock market. The thumb rule is to ‘buy on lows and sell on highs’. Booking the profit in right time is very important to get the desired return, otherwise stock may retreat from its higher level and you may have to wait for a longer period to get an appropriate return. Like any other investment, you should invest in stock markets according to your financial capacity to avoid facing the liquidity crunch.
If you are planning to invest directly in the shares, then you need to possess aspects such as adequate funding, expert knowledge, a high degree of patience etc.
Investing In Equity Oriented Mutual Fund
Mutual Fund makes investing in stock markets little simpler for you as your funds are taken care of in a very professional style. The money that you invest through Mutual Fund is managed by highly skilled fund managers, who are well versed with the market movement through tools which normal stock investors do not have access. While investing in equities through the mutual fund, you don’t need to study about all the stocks and their performances. Fund managers take care of diversification to lower the portfolio risk. You just need to look at your own return expectation and select the appropriate mutual fund scheme to get the desired return as per set time frame. Mutual Fund gives you lots of choices to invest as per your risk capacity, return requirement, investment time frame, etc. Some popular equity oriented fund category includes, Large cap mutual fund, Small and Mid-Cap mutual fund, Sectoral mutual fund, Diversified Equity mutual fund, etc.
Mutual Fund also allows you to invest as well as get the tax deduction benefit U/s 80 (C) by investing in Equity Linked Saving Scheme fund (ELSS). Such investment has a lock-in period of 3 years. After 3 years, the return that you earn on such investment is also exempt from the tax.
Mutual Fund allows you to invest a lump-sum amount and also through instalments under Systematic Investment Plan (SIP). If you invest through SIP, then you can select a certain amount to invest in a regular interval for the desired tenure. SIP allows you to get the advantage of Rupee cost averaging over a period of time and mitigate the volatility risk in the long term.
Mutual Fund Vs Stocks
If you are ready to allow sufficient time to take care of your stock portfolio, then you can put some fund directly in the stocks.
Equity Mutual Fund gives you an objectively oriented investment opportunity. You can invest in various types of equity MF schemes as per your financial objectives. If want double benefit, i.e. tax saving and investment benefit both, then Mutual Fund has a definite edge over the direct stock investment. In terms of the investment cost, Mutual Fund charges you much lower fees in comparison to the direct stock transaction. If you are looking for comparatively low risk, then Mutual Fund is the product that would fit your requirement.
Is It A Good Time To Invest In Equities?
The stock market this year so far has been on an upward path despite slowdown after demonetisation and GST implementation. The growth trend is expected to continue but it is difficult to predict when the stock market will turn turtle. Therefore, if you are looking to invest in stocks in the prevailing situation, then you should start with SIP investment in equity mutual fund to ensure a safe return, even if the stock market does not move exactly as per expectation.