Should I invest in Mutual fund or direct invest in equity
A question that kept boggling my mind was whether to buy a mutual fund or direct invest in stocks. Whether direct Investments offer higher returns than primary equity-based mutual funds or not.
I have been a regular mutual fund investor for many years and I am getting around 15% annual return. In fact, my last year Mutual fund return is average 21% (which is incredible).
Two greatest benefits of investing in Mutual funds are
- Less risky than investing in equities directly.
- Returns in Mutual funds are more consistent than equities because they are generally well diversified over a portfolio of stocks.
However, My stock portfolio return is above 70% over the same length.
Last One year cash returns.
Nowadays, we are told that mutual funds are the best way to invest in stock markets in advertisements and articles.
In my opinion, Investing in mutual fund helps the fund house, fund manager & their employees. Mutual funds beating Index are a trifling argument. Those who directly obtain stocks do not by all companies that are in the Index and hold on to them. A fastidiously managed portfolio of two stocks can surpass most mutual funds. The trick is to shop for low, particularly throughout the crash and sell high. Most of the people do the alternative. SIP is another scam to draw in the most salaried category who have no idea what they’re stepping into. The larger the crowd in Mutual funds, The larger the fund earns You rarely see any real dividend or desire obtaining, and haven’t any say in company affairs like voting rights, don’t perceive what’s occurring within the company.
This, therefore, referred to as Mutual Fund and SIP nostrum helps solely fund houses and brokers with a regular financial gain. Some sectarian mutual funds give annual returns over 60% too, but still, they do not outperform the relative sectarian indices. I would agree that Mutual funds are the most effective, once the fund goes up 20% when the market goes down by 20%. Otherwise, it’s nothing but simply an option for people who wish to indirectly enter the market.
There is general misconception or fear spread by our media that direct equity investment is risky and SIP is best. I believe Market participants lose cash in equities after they leverage or after they invest in junk stocks or when they trade stocks based on recommendations (including Analysts on TV channels). A carefully managed portfolio of even two stocks can surpass most mutual funds. A decent share of the retail investors loses cash because they bog down in junk stocks as a result of TV channels and their good-for-nothing specialists.
The problem is. After they report news or give recommendation there are really advertising those stocks. If Reliance power or a JP group or a company like KS-Oils is in the news then retail investors get a brand new stock recommendation. And they are never able to exit it before the promoter does.
If you’ve got the time to actively monitor and research stocks, you’ve got a reasonable know-how regarding the stock markets and you’ve got the patience to absorb market volatility.
To prove my point that whether to invest in Mutual fund or direct invest. I am doing an experiment. I will buy Two stocks, ITC and HDFCBANK of 10,000 rupees per month and an Equity diversified mutual fund named HDFC Equity Fund – Direct Plan (G) of the same value per month and let us analyze the returns of both after a period of one year from 10 May 2017.
Click to see the comparison Performance Tracker sheet
A disclaimer: I am not related to any fund house. I am just another regular investor who invests in Mutual funds and direct stocks as well.