Why Mutual Funds Score Over Stocks

By BankBazaar | November 27, 2017

It is better to invest directly in Mutual Funds rather than invest in stocks through Mutual Funds. Wondering why? Let us tell you why going the Mutual Fund way is more rewarding.

Why Mutual Funds Score Over Stocks

Mutual Funds or stocks. It’s the eternal dilemma. It is better to invest directly in Mutual Funds rather than invest in stocks through Mutual Funds. Wondering why? Let us tell you why going the Mutual Fund way is more rewarding.

Additional Reading: Golden Rules Of Investing

It is not necessary to pick and track stocks

With Mutual Fund investments, you can bank on your appointed fund manager to select funds, track performance, make appropriate asset allocations and cash-in your profits for you. The fund manager takes care of everything. The fund manager will try to ensure that an investor’s portfolio consists of well-performing funds, rather than those that might drag down the overall investment returns.

Additional Reading: What To Remember When Investing In Mutual Funds

No short-term capital gains tax

If an investor manages the investment portfolio on his own, there will be some degree of buying and selling activity on the portfolio.

If an investor sells any stocks within a period of one year, they will have to pay 15% as short-term capital gains tax.

Investing in Mutual Funds will save an investor money. This is because with Mutual Funds, there is no capital gains tax levied on the stocks that are sold by the fund. This spells a sizable benefit for the Mutual Fund investor. Yay!

But wait. Before you start counting your pennies, remember that an investor must hold equity funds for a minimum of one year (the longer, the better, really) if they want to avoid paying capital gains tax on the investments.

Additional Reading: How To Calculate Capital Gains And Save Tax

Lower cost of investing

In case you venture into stock investments on your own, brokerage costs of 0.5-1% will be a common expense for you. There’s more. You’ll be required to pay demat charges too.

Here’s some good news. Mutual Funds pay only a fraction of the brokerage costs compared to what is charged to individual investors. Investors in Mutual Funds also do not need demat accounts.

Additional Reading: What To Remember When Investing In Mutual Funds

Portfolio diversification

Here’s a tip. A well-diversified investment portfolio ideally has around 25-30 stocks. But wait. This kind of portfolio is achievable only with a sizable corpus.

Mutual Funds offer investors the benefit of instant diversification. With Mutual Fund investments, investors buy a certain number of funds which invest in various stocks. This way, you can get a diversified portfolio without a huge investment corpus.

Additional Reading: How To Meet Your Goals With Mutual Funds

Haven’t we given you enough reasons why investments in Mutual Funds are more beneficial than investments in stocks?

Ready to try your hand at Mutual Funds?

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