Why should investors start with mutual funds before stocks? MintGenie explains
There is no dearth of people looking to earn money from the stock market. The Indian stock market is open to both novices and veterans who display their skills in selecting stocks and investing in them. Statistics shared by Motilal Oswal Financial Services in January 2023 reveal how the number of demat accounts went up by 34 per cent by December 2022, a stark increase compared to the number of accounts opened by stock market investors in the previous year.
The number of mutual fund holdings has also gone up though data do not indicate an exponential rise in the same. Numbers do not show any correlation between demat account and mutual fund portfolio numbers though behavioural analysis suggests that new-age investors tend to leapfrog into stock investments without paying any heed to mutual fund investments.
Many stock market investors, especially, those looking to make quick money from the market volatility tend to question the validity of earning by investing in mutual funds. The rationale behind including mutual funds or a mutual fund portfolio in financial planning has been questioned by many with existing investments in stocks for wealth creation.
Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates, said, “Whether one should go for direct equity or mutual funds is a personal choice, but for risk management perspective- direct equity investing requires in-depth analysis and research to earn sizeable returns, On the flip side, mutual funds require lesser analysis comparatively. I think one should start with mutual funds and then explore direct equity investing subject to knowledge of fundamental analysis and the nitty-gritty of sectors and businesses. To be a successful stock market investor,
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