Mutual Funds versus Direct Stocks

These days more people are coming in terms with the benefits of investing their hard-earned money in various schemes. The earning through such schemes is determined by their market knowledge and their investment timing. It is wise to not get blind folded by the attractive claims of the direct stocks and judge the facts by looking at the bigger picture.

Reasons why the mutual funds are better than direct stock funds?

1. Both mutual funds and stocks have an extent of risk element associated with them. When compared to one another, the mutual funds are considerably less risky than the investments in direct stocks. The feature of diversification across various stocks and sectors enable the fund investors to spread out their risk. The investors of the direct stocks tend to face limitations when it comes to this aspect, as many of them are not well adapt with the knowledge required to be familiar with most sectors and companies.
2. The mutual funds are actively managed by the professional fund managers and hence deemed as passive investments for the investors. The direct stock needs thorough market skills and knowledge on the part of the investors to be managed effectively. The direct stock needs time and active participation of the investors to flourish.

3. The cost of investing in stocks is deemed cheaper than in mutual funds as the brokerage paid to buy stocks is lesser than the mutual fund management fees. When it comes to mutual fund investments, the investors are not required to open any DEMAT account, unlike the direct stock investors who have to pay an additional charge for opening the DEMAT account along with the fraction of brokerage fee.

4. The direct stock investment is mostly practised by the selected groups, mainly by the business groups, who are financially quite comfortable and possess wide knowledge in the field of investments and changing market conditions. An investor who doesn’t have much knowledge about the working principle of the stock market can invest in mutual funds since it doesn’t require them to research the market condition or collect the data.
5. The mutual funds are considered safer than the direct stock investment; primarily because it is managed by professionally experienced fund managers who are experts at selecting a balanced portfolio that generates long-term returns for the investors.  
6. Though the direct stocks may generate higher returns than the mutual funds, they have higher involvement of risk too. The investors who are not equipped with the tact and knowledge to time the market or its erratic behaviour will lose more money in the stocks than in the funds.
7. The mutual fund investors tend to enjoy better tax-benefit when compared to the direct stocks. Moreover, the fund investors also benefit in terms of capital gain tax when compared to the direct investments made in stocks.

Proper financial planning, effective diversification strategy and tips on the stock market are among the many benefits that an investor can enjoy from the assistance of the financial experts and fund managers. Contact our experts for any financial assistance and market-related tips.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 167127

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