There can be the numerous number of reasons why one should go for mutual funds rather than stocks, one of them being mutual funds offer diversification, convenience, and lower costs.
Determining a portfolio’s asset allocation, researching individual stocks to find companies well positioned for growth as well as keeping an eye on the markets is time-consuming consuming. People devote entire careers to the stock market, and many still end up losing on their investments. Though investing in a mutual fund is certainly no guarantee that your investments will increase in value over time, it’s a way to avoid some of the complicated decision-making involved in investing in stocks. There are many people who manage to invest themselves with considerable success. However, the odds are against any one individual being able to do so, in the sense that for every 100 who try, perhaps 5 or 10 will be successful. An even bigger problem is that even those few would have probably learned to be successful after many failures. That’s something that turns out be a dealbreaker for most who set out to become expert equity investors.
Another advantage is that of being able to invest in small amounts. If you try to build a diversified portfolio with stocks by buying them directly, you’ll need a relatively large sum of money–at least a few lakhs to begin with. In mutual funds, you can start off by owning the same with a few thousand rupees. It’s all much more convenient too.
On top of all this, there’s one advantage that results in higher-in the long term, much higher-returns in equity mutual funds. All equity portfolios need some buying or selling as individual stocks become more or less desirable. If you are trading stocks yourself then these transactions may mean a tax liability. However, in an equity mutual fund, this trading is done by the fund manager inside the fund. You don’t have a tax liability because you haven’t made transactions yourselves. There’s a further multiplier to the tax saved because the money stays available as an investment and thus gains even more. For long-term investments that compound over years, this can make a huge difference.
So, that’s a long and persuasive list which I have covered in this write-up; if you are not convinced, you can still go ahead and invest in stocks directly. Either you end up with having plentiful of crores or the vice-versa.
Happy Investing! 🙂