What is that one thing that is common for everyone you know in your life? Well, there are several things that you can find standard in a bunch of people, but the major desire that everyone has is the desire to become wealthy overnight. In reality, it isn’t as easy as people think it to be, but it will be wrong to say that there are no ways to gain such wealth. Everyone nowadays desires to become wealthy, and that is the reason because of which most people today are looking for different avenues that can make their money grow.
As per a few studies, in the last 20 years, the equity market in India has offered people a great option that has delivered superior long-term returns as compared to the traditional options such as Gold and FDs. This change in the elevation of the market see-saw has seen more and more retail investors realizing the true potential of investing in equities and how this option can help them in generating inflation-beating returns. Remember that here, we are not just talking about investment but a long-term investment.
It is important to move on to the main topic, but before that, you should have clear basics about equity investments. A common retail investor can invest his/her capital in equities by two ways. The first one is purchasing the stocks of any listed company/organization via a Demat account, and the second is by investing in a promising equity mutual fund which allows a retail investor to hold equities indirectly. We would like to clear one thing, and that is both the options that we have mentioned above have their own benefits and associated costs. The right option for an individual depends mainly on his/her specific needs and requirements.
If we talk about most of the retail investors today, it will be right to say that equity mutual funds offer a better option to people than investing their hard-earned money on equity shares. You should know that equity mutual funds are like a basket of equities that are managed by professional and experienced fund managers, and they finally invest in a diversified and large pool of equity stocks. A retail investor will only have to invest the amount of money that he/she desires to put out on equity mutual funds to join the fund holdings. We won’t be confusing you any further without solid proof. Let us check out the advantages that equity mutual funds hold over direct equity investments before landing on any conclusion!
Affordable and Instant Diversification
It is evident that equities are risky and the best way to manage the risks associated with them is to diversify. Since mutual funds hold a good number or equities, therefore, they are diversified. This way,the mutual fund gets security, and it survives even when a few of the equities don’t do well. No matter how much you are investing in mutual funds, as soon as you make the deposit, the amount soon becomes a part of the diversified portfolio offering you instant diversification. When you compare this option to making a diversified portfolio (as direct equity investor), it requires significantly more money and extra work.
Strong Risk Management
A number of retail investors let their sentiments dictate their investment decisions. Thismakes them invest in a single stock. Thisfinally leads to better experiences as they don’t get the results that they wanted or expected. Rest assured, equity mutual funds can’t do the same because of the security provided by the multiple risk management guidelines and tools that help in filtering out sentiments from the final portfolio decisions. In the same, investment decisions are dictated by substantial research that is conducted and vetted by experienced and professional investment teams.
Active Portfolio Management
What is the major factor that dictates the success of an equity investment? The answer to this question is active portfolio management. You should know that equity mutual funds hire skilled investment professionals who have the responsibility of full-time fund management on their shoulders. The team of investment professionals has the experience and expertise of monitoring the global markets and performance of the portfolio companies. This empowers them to make informed decisions related to equity identifying, purchasing, holding and finally, selling. On the other hand, direct equity investors will have to spend their valuable time and will have to be highly disciplined regarding investing in order to offer a comparable level of management as equity mutual funds.
Innovative & Beneficial Investment and Withdrawal Options
The immense scale at which mutual funds operates allows this option to offer innovative investment and withdrawal options such as Systematic Investment Plan, Systematic Withdrawal Plans and many more. The availability of such options allows investors to be more disciplined about their investments and in addition to that, also offers them a seamless experience of investing, managing and withdrawing from funds.
For sure, if you ask us which of the two models of investing, we won’t deny the fact that the choice between the two options for a particular retail investor will depend upon a number of important factors which includes his/her market expertise, risk tolerance and the time they will dedicate to research work. Investment in direct equity shares is recommended for those investors only who possess the knowledge of the equities market and have the capability of selecting great stocks. Young or investors don’t having time should prefer sticking to equity mutual funds.