You might have heard that it probably makes better sense to invest in mutual funds than in shares, as the former are professionally managed by experts who will take informed investment decisions on your behalf. While there may be something in this, especially for those who have little knowledge about investing in stocks and shares, the fact of the matter is that where you should invest depends upon the kind of returns you want to obtain on your investment in comparison to your willingness to expose yourself to risk. The higher the returns you seek, the higher should be the risk that you are willing to undertake.
When experts recommend mutual funds as a safer option, they are right for most part, but this safety comes at a price and I am not merely referring to returns here. The cost of mutual funds is higher than shares because one has to pay expense ratio in case of mutual funds, which is not the cases when it comes to shares.
Another thing about mutual fund managers is that they are extremely risk averse and focus most of their investment in blue chips and forego the highly lucrative returns that small cap and mid cap companies with potential can offer. A savvy stock investor on the other hand would be able to make a killing with that kind of investment.
Another huge advantage that shares offer over mutual funds is that the former can be traded throughout the day (trading hours), while the latter can be done so only once, at the end of the day. Imagine a scenario where there is a price meltdown and you want to offload in a hurry.
Everything considered both stocks and mutual funds are a viable investment option for people. If you are the risk averse type who likes the fact that a professionally managed mutual fund provides you a safety cushion in the shape of a diversified portfolio of blue chip shares, mutual funds in what you should go for. If on the other hand you are impressed with the possibility of returns offered by directly investing in the stock market, both the risks and rewards are yours to reap.
However, in the case of the latter you have the option of subscribing to 10paisa.com’s services and get well researched bi-weekly recommendation on smallcap and midcap stocks .
At the end of the day investment is a matter of personal choice and preference. One should study the evidence on offer and decide the appropriate course of action for oneself.