Mutual Fund Vs Stocks: As the stock market is touching new heights, people’s interest in equity is increasing. However, the big question is that young investors should invest money directly in stocks through mutual funds. Here are some reasons behind why mutual funds have a slight edge over stocks (stocks) in terms of investment under personal rationality.
This reduces the risk of concentration in a particular stock as it invests in different types of stocks. The advantage of diversification is that even if one or two stocks in your portfolio do not perform well, your loss can be reduced due to diversification. But when it comes to investing directly in stocks, no one invests more than 10 stocks on average. Due to which the risk increases when the market volatility increases.
Mutual funds are professionally managed by a team of fund managers. These fund managers do a lot of research and study various stocks. After that we identify selected stocks which have the possibility of giving high returns. They also study financial statements and other essential information about companies and are well versed with the risk management process. On the other hand, investing in shares means that the investor has to study the stock market himself. This task is not easy for any new investor.
A mutual fund follows a very systemic-less-professional-less-disciplined approach for investing investors’ money. At the same time, there are many types of funds in the market in the form of equity, debt, hybrid, gold, with specific goals. Goals like retirement, education of children or marriage marriage can be behind the investment. You can go towards a liquid fund or a corporate bond fund depending on your investment goal. Or you can also take the path of Systematic Investment Plan (SIP).
Benefits are available as a deduction under Section 80C of the Income Tax Act while investing in certain schemes in mutual funds. For example, an equity-linked savings scheme in which deduction up to Rs 1.5 lakh per year can be availed. At the same time, there is no such benefit available for investing directly in stocks. At the same time, one has to pay STT, dividend distribution tax, capital gains tax. Fund management fees have to be paid in mutual funds.
If an investor has time to study and research various stocks and his financial information, then he can create his own stock investment portfolio. But if we are not able to do enough research or do not have enough time to understand and evaluate the various stocks and other aspects related to them, and want our money to be taken care of professionally by fund managers, then mutual funds The best option for investment.
(Source: Tax Guru)
(By Shubham Phophalia)