Equity mutual funds or stocks: What is right for you? MintGenie explains
mutual funds is a testimony of this change in attitude towards investing. Another interesting trait of these youngsters is their hunger and openness to learn about investing.
Having interacted with many young investors in recent times, a common question they have posed is….… Should I stick to investing in equity mutual funds or should I also invest in stocks directly? While there’s no straight answer to this question, here’s an attempt to put this “equity mutual funds or stocks?" debate in the right perspective, especially considering the changing mindset and attitude of young Indians. First of all, there is no doubt that equity mutual funds are one of the best investment products for retail investors given the various advantages they offer - diversification, professional fund management, strong regulatory framework, low cost, affordability, transparency, convenience and so on.
The strong regulatory framework and some of the other characteristics of mutual funds stated above significantly help protect the interests of the investors. However, they also come with certain investment constraints.
As such, most equity mutual funds may not be able to deliver huge outperformance relative to their respective benchmarks. In fact, from a long-term perspective even 100-200 basis points of outperformance vis-a-vis benchmark can be considered reasonably good for an actively managed equity fund.
Direct stock investors on the other hand do not have any such investment constraints and can construct their personalised stock portfolio to suit their own risk appetite. So does that mean you should prefer direct stocks over equity mutual funds? Well, before we answer this question, let’s look at the type of flexibility that direct stock
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