When it comes to investing in the stock market, there is the option to do so directly or via mutual funds.
In this article, we share 5 killer reasons why investing in the stock market through mutual funds clearly makes more sense as compared to doing do directly.
1. The Expertise of Mutual Funds Managers
A very big advantage while taking the mutual funds route is the fact that there are expert fund managers taking care of your money. These are professionals with years of experience in this realm who know how to allocate money most prudently.
This includes moving money from one stock to another or from one industry sector to another, as quickly as possible, depending on the way the market is performing.
The speed and efficiency with which these fund managers work is something that is extremely difficult to replicate on one’s own. That is the reason we recommend opting for these experts while investing in stock markets as opposed to investing directly.
2. Eclectic Portfolio Mix
In the case of mutual funds, depending on the scheme in question, there is a very wide portfolio of stocks that are held within each fund. In fact, depending on the kind of fund it is, there may not be any equity stocks at all in that fund. Debt funds, for example, are funds where safer, fixed-return investments are held, opposed to high-return but high-risk equity investments.
As we mentioned in the previous point, this judicious mix of diverse investments, coupled with a constantly changing stance, based on the way the market is going, both short and long term, is something that is best left to the experts to handle.
3. Peace of Mind
A very big advantage with mutual funds is the peace of mind that they offer. Otherwise, when we compare with direct stock market investments, the extent of involvement required is substantial. Yet, in spite of all this involvement, you can never be sure that you will actually get the kind of return on your investment that you had been hoping for.
In the case of mutual funds, fund managers do the job for you. They, in turn, have an entire team of analysts working day and night to ensure that the funds perform as successfully as possible.
Additionally, they also have an entire barrage of tools at their disposal which also helps them maximise returns on the investments they make. Constant chopping and changing in the investment mix ensures maximum returns on their investments for investors.
Investing directly in the stock market takes ample investments and, therefore, a large financial corpus to really be able to diversify one’s portfolio. But with mutual funds, even with a single fund, you will actually be in a robust position to diversify your portfolio without much effort.
Now, diversification is absolutely essential when investing in the stock market, whether directly or through mutual funds.
With the latter, you can actually hold multiple funds and therefore, diversify to an even greater extent. For instance, you could hold separate debt and equity funds. Even within these, there are sector dedicated funds such as funds that invest in the IT sector, others that invest primarily in the real estate sector, and so on.
Therefore, even when you are looking to target certain sectors or particular industries, etc. going the route of mutual funds would actually make a lot of sense.
There are way too many reasons for which investing in the stock market via mutual funds proves to be a far more feasible option as compared to investing directly.
Yes, mutual funds obviously look to have their own share of the profits that are earned but that amount is relatively marginal. Moreover, even after that, your own profits would be substantial enough to justify the fees/commission given out to mutual fund managers.