Glamourous and tempting: But is direct stock investing suitable for everyone?

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Subscribe to enjoy similar stories. The stock market gods have been kind in recent years—and sometimes very kind, delivering impressive returns for those who made the right investment choices and got a bit lucky. Unsurprisingly, many individuals have taken notice and moved into direct stock investing.

One look at the number of demat accounts being opened shows a clear trend. A friend recently shared that since he can now comfortably generate better returns with his direct stocks (than mutual funds), he has moved all his portfolio to direct stocks. He started investing in MFs almost a decade ago, but his direct stocks adventure started just two or three years back.

So, it’s obvious that his recency bias has made him do what he did like many others who are taking up direct stocks in a big and serious manner nowadays. That said, is it a sensible idea to just invest directly in stocks and not in mutual funds? People have strong views about this based on their individual experiences. And to be fair, there is no one-size-fits-all answer.

Investing directly in stocks gives more control to build a focused portfolio that can attempt to generate higher returns and/or beat markets (and MFs). However, with some experience, one understands it is easier said than done. The potential for higher returns exists in direct stocks, but so are the risks.

And the reason is that if just a few of your stock picks in a concentrated portfolio start doing badly, your overall portfolio could take a serious hit. Experienced investors who have seen a few market cycles know this already. But those who have joined our markets in the last few years and have only seen it rise, might not understand this and how to deal with a falling or bear market.