Stocks vs mutual funds investing
Jagoinvestor - Personal Finance Blog. Manish Chauhan 97 Comments. When we say Equity, what comes to your mind — Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes under the category of Equity and they are good option for long-term investment and needs periodic review. There are some differences between stock investing and mutual fund investing that is done by a common man.
On a given day it can be extremely volatile. Mutual fund on the other hand is not that much volatile by nature, as the diversification is very large and at a time stocks are covered.
Different kinds of stocks from different sectors and market capitalization are involved in mutual fund and the over all change in value is thus less volatile other than extreme days. There are lot of success stories where someone got quick rich by investing in equities directly and it can happen, but those are rare happenings and require lot of work and analysis, patience and belief in what you have picked.
If you want superb returns in short time and you believe you can research well, you can go for stock investing directly but then risk is also more. Mutual funds are known to deliver good returns not in line with stocks, but still very good. So you can expect handsome returns from mutual funds but not unbelievable like stocks return.
This is mainly because the money is diversified across different stocks read ideas and chances of all of them becoming a super success in short time is impossible. Stock investing is a personal affair and you are doing it on your own the decision of what to sell and what to buy is on you.
Even in case of long-term investing, you might have to keep an eye every quarter or yearly unless you have really spent some good time in picking the good stock. You need to also keep an eye on news and sector specific developments. Monitoring in mutual funds is relatively low because the job of monitoring is anyways done by the fund manager who is paid SALARY to filter through the fluctuations.
He constantly adds and removes the stocks from the portfolio. This can be a positive point, but sometimes it can be a negative point also if there is too much of churning. Mutual funds are known for possibility of SIP monthly investment.
SIP in mutual fund works and is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets.
However SIP in stocks do not work. There is no diversification and SIP in a particular stock does not make sense because the risk is with single stock. A stock can be in a bad phase for years and decades, whereas in a mutual fund the bad performing stock is weeded out.
Stocks investing is restricted to Stocks only. You can choose a large cap stock, mid cap stock or small cap stock, but finally it will be equity asset class.
However, mutual funds can invest in mix of asset classes. There are equity funds, debt funds, gold funds, Mix of Equity and debt also. To top up, even balanced funds are there which can adjust the asset allocation on its own, so in a way mutual funds are more superior in terms of features compared to a single or bunch or stocks. You should be clear about all the points of difference and only after that you should decide whether to invest in Stocks directly or take the Mutual Fund route.
September 23, at 3: Hi, I just heared about a new bond: Could u plz give me any idea? September 25, at PLease start a thread on our forum to ask about it, you can create your account here — http: July 8, at 4: Hi manish…i want to invest my money, but very confused where to invest; stocks or mutual funds?
So can u guide me which is safest place to invest; as a short term investment? July 15, at 1: Here is how you should start — http: September 15, at 7: If you are new, then you should go for mutual fund but if can analyse stocks then go for investment in stock market for long term in blue chip company, you will get handsome gain.
September 16, at 7: May 4, at 5: Dear Manish, I am a regular reader of your articles Jagoivestor. Two months back I have stared investing in MF and Debts funds with the help of a certified FP. Its really great and wonderful and please do keep writing towards making us INDIANS a SMART INVESTOR. Please keep on commenting and be in conversation! April 18, at For long term you can invest in Equity in following stocks for minimum 5years time frame.
You will get handsome gain. April 13, at 7: April 17, at 3: For long term … gold is not the best investment vehicle! April 18, at 2: April 12, at 6: April 3, at 5: This is a general query: Suppose i want to build say 50 Lakh in next 10 years by MF SIP by selecting say MF-A,MF-B, MF-C and i have invested for 5 years, in case after 5 years MF-A starts performing badly like Reliance Growth now and assume i have already invested around 8 Lakh in this fund, so i am forced to sell this fund in this case what should i do?
April 5, at 7: Performance of Mutual Funds depends on the fund management primarily. If IDFC Premier is doing too well, it is because of Ken Andrade. If HDFC funds are doing well, it is because of Prashant Jain. Looking at Reliance growth, it went downhill because of Madhu Kela moving out of the fund management quite a while back.
There were definitely warning signs for that fund for some time Value Research ratings went down from 5 to 3 gradually. There are multiple strategies how you can move the funds either in bulk sell high and buy low or gradually using SWPs and SIPs.
Your risk tolerance and mileage may vary. April 1, at 3: I feel many new investors fall trap to stocks with the lure of making quick money, instead they should start via SIP in MF and then do extensive research and invest in stocks.
April 2, at 5: March 21, at 4: I enjoy trading in a smaller capacity and do it regularly though I have very bad experience in stock trading. March 27, at April 3, at March 31, at He wanted to mean that if the time horizon is 10 years the risk is very less. In modern portfolio theory the slogan is maximum return with minimum risk. Mutual fund is managed fund but stock is not. March 31, at 1: March 30, at 9: People who invest little bit money every month, they have only one best option — Mutual Funds.
Otherwise, go for Direct Stocks. SIP in mutual funds is best way to create wealth for those who have monthly cashflows! March 30, at 1: Investing in sghares or Equity Mutual fund, carries a level of risk, where it may vary marginaly between them. Better option identify a script and go for a sip in the script.
March 31, at 8: April 3, at 3: April 3, at 4: So better do it in SIP! April 6, at Works very well in a market downtrend when there is too much pessimism. But there is always risk in making an investment unless you are very clear about the future in that investment. But not in a broker managed scheme like an Equity SIP.
March 30, at Hi, Is money earned by Mutual Funds Managers from Investments distributed completely to Customers? March 29, at See what happened to the Reliance Industries?
Reliance lead the market in period. It touched on Jan, and now it is at It was a fancy stock in that period, but not now. So buy at low and sell at high is always better strategy for every one. It will apply for the stocks as well as Funds. Like i said before its easy to say you should have sold reliance in But how many people who invsted in it in without any research would have done that? And no broker on news or any form talked about SELL in did they? That is why its tough for individual to do direct investing without investing enough time on research and constant check.
I agree with you. Right now they are available at below MRP rates. Coal India is the 2nd largest Coal company in the world. Our cement companies are the largest in the world. Our banking system is very strong than many largest financial organizations like CITI Group, JP Morgan..
There are so many good companies in our country. We can easily find out them in bear markets. March 29, at 9: From the comment section it feels like people are comfortable with direct stocks. There are lot many risks involved in direct stocks. But if you have diversified direct stock portfolio of stock how many of them will surpass this conservative estimate.
But how many would have been ready to take such concentrated risk?. I am not vouching for MF but for a full time employeed person with little time to do research and keep constant check,he is better of with investment in MF. Infosys touched around in Jan and dropped close to by Jan How many have the temperament to hold the stock when it falls that much.
Everyone thinks if market falls, then we can get more units and more returns. But this works in reverse for Mutual Funds.
But if you directly invest in stocks from May , You will be getting huge returns than Mutual Funds. Now tell me which is the Top rated mutual fund? And if we calculate the returns upto 6 years, then A will be the top rated Fund.
If you calculate returns upto 8 years, then you can find out the secret of Mutual Funds. Are you referring to SIP returns or fund return and this may vary.
Also the units bought during down turn of is yet to pick up. I am referring SIP returns. On Nov, ; Markets touched the all time high after jan, I am not against Mutual Funds. But how can we identify the best Mutual funds out of Funds? If i am wrong, correct me. You may not want to go by the ranking of the funds. For some indication of how a fund is doing, just look at the Value Research rating www. A 4 or a 5 rating in the respective category Diversified equity, Balanced is decent.
Compare the returns of the fund with other top rated funds for some insights. March 29, at 8: I have never invested in stocks as my father never allowed me. There is no great book on Stock Market in this World. But if we have, then that book will be the best seller in the world and the author will win Nobel Prize.
So this is the right time to enter the market If you miss the bus in Dec, Today inflation is very High. So go for Interest Rates related sectors like Banks, Two wheelers and Auto Sectors. I avoid Infra Sector, but like to buy the IVRCL.
Because it seems to be the strong company in this bull market. I feel RBI will lower the interest rates after 3 to 4 months. So we can directly invest in these sector stocks. It may help you. Now what about the current Indian Economy Situation? Inflation and Crude is still high.
So in the short term, Market will fall. But in the long term, You can get huge returns if you invest money every month in stocks Specified Sectors only like SIP. Come to the Mutual Funds, People like Warren Buffet and Peter Lynch never recommend us to invest in Mutual Funds. This concept is developed by Brokerage Institutes for their Commissions This is my personal opinion only. What Warren Buffett does as part of Berkeshire Hathaway is not called a Mutual fund by anyone — but is indeed a holding company for a number of companies that they buy [with control].
To each his own: High risk High return — MF: Relatively low risk; Relatively lower return. Both usually beat the market [India growth story will ensure MF returns continues for a long time]. March 29, at 6: While I agree that new investors should go via mutual fund, they should also know the drawbacks of mutual funds.
Some are listed here: It makes a huge difference over years. If you do not watch the fund closely, sometimes you get raw deal here. But Fund Manager may buy anything that he choses to. I am sure many fund managers do it. If you can analyze annual report reasonably well, then I suggest you invest directly in stocks and have a diversified portfolio. If you find it difficult, then I suggest you invest in Index mutual funds Benechmark Nifty, benchmark Bankex etc. They atleast charge less 0. A handful of Mutual funds including Balanced funds have beat the index by a large margin over a decade or even more.
Such long term performance does not happen by chance. It is very easy for someone to say a direct stock portfolio can beat the market. But only infinitesimal number of people have the temperament for digesting the wild swings in an individual portfolio. I personally favour direct investing as well but such a strategy is not suitable for a bulk of the population — this I think we can agree.
I have also seen that in some cases where they have beaten the market, it is by luck also. Now the question is: There is nothing wrong with the market. A low net worth person, might look at getting very high returns more like lottery so that he can jump to slightly better position. But an HNI might be intersted in protecting his assets with reasonable returns probably slihglty higher than FD.
You can see this when you notice that most of these tax free bonds are oversubscribed by HNIs times. While I do respect your perspective and opinions, I would like to provide my perspective on this as well.
On Point 1 2. That is the cost of doing business for a service that is provided. Whether there is transparency is terms of the charges is something that merits a totally different discussion.
Funds that invest in illiquid stocks are mostly hedge funds or speculative funds. If the fund manager is smart, he will find innovative ways to do an off-market transaction. That is a recipe for disaster. If very few people want those stocks, why bother with them? Most funds make it a point to publish their data with a 1 month delay and you can very well view it in many sites.
The reputation of a fund depends on the reputation of a fund manager. I would go with any fund managed by Kenneth Andrade or Prashant Jain because they have an excellent standing in managing within the boundaries they are allowed to. HDFC is one of the most respected institutions. There are always bad apples in every organization. Punishing the managers is a good thing. There is very little information that is shared to the investors by the respective companies and fund managers are the best bet to have access to this information.
March 29, at 5: Peter Lynch said it is not timing the market but the time in the market that determines the returns. For the person with a serious passion and temperament stocks are the best bet. But for a majority of them MFs are the best bet for there are no other better avenues to beat Inflation in the long run.
Mutual funds vs stocks: Find out which is better - Mutual funds vs stocks: Find out which is better | The Economic Times
March 29, at 4: It is not sure that we will get good return over a stock investment as it is highly subjected to market conditions where after some time it may not come back and shine but the rise and fall in mutual fund NAV is not that much drastic so that we can relax a bit. March 29, at 3: It is just an introduction to what is Mututal Funds but not a good comparative analysis of shares and MF. Take top rated MF, take their top 5 investments and proportion of funds they are investing, put your own chunk of money into the same list of stocks.
Compare it with investing directly or through a MF. At any given point and any given day, direct investing in stocks will give higher returns than MF. I question the credibility of stating diversification will give good returns for MF than direct investing in stocks. No one will stop you investing in multiple sectors. A lot of people do SIP in stocks , a lot of people feel picking a stock and not looking at it for 2 yrs if fine , just like Mutual fund..
Direct investing needs so much temperament.
Mutual Funds vs. Stocks: Which is Best for Your Investing Style? - nihoyuyipe.web.fc2.com
An already beaten down investor will just exit the market completely and lose the golden opp to make money in the markets.
It is very easy to say that people must dump the losers and buy more of their winners. Very difficult to implement for someone who has just see a significant wipe off from the market value. Even when the markets dont tank like the Satyam event the individual portfolio will undergo sea changes than a MF portfolio and impulsive decision making is possible.
MF investment reduces that. I agree with you that a direct stock portfolio can beat MF returns big time but not too many people have the time, ability and temperament to do it. March 30, at 8: Risk appetite and capacity to take risk is important. Most investors do not want to take the risk of losing a substantial portion of their investments.
Greedy investors also learn their lessons after losing money. April 6, at 7: Hi Sumeet When the mutual funds were first launched the idea was to provide a vehicle for investing to the small investors who did not have time to do research and enough money to invest in costly bluechip stocks.
MFs provide the additional benefit of professional management and diversification to reduce risk. You also have the option of investing in different asset classes like debt, equity and gold. Hybrid funds provide the benefit of automatic rebalancing. If anyone has any aspiration to become Warren Buffet then he should invest in stocks. For other new investors they should opt for MF through SIP. April 5, at 6: Rakesh is so idolized that even if he makes a stupid investment, he gets the benefit after his holdings are published a month later.
Just see what happened to Aptech recently. Noone wants to buy it back from him. Every Tom, Dick and Harry recommends the SIP method to invest in MFs.
It works as long as the market is on a trend of growth with fluctuations in between but just take a look at SIP performance between and and you are likely to very disappointed. SIP IMO needs a little bit of timing to be on and off and that has to be learnt by experience.
If anyone wants to start SIPs, now is a good time to start. April 6, at 6: Hi Sridhar SIP is just a mode of investment. It is not a magical prescription which will give you good returns under all market conditions. The main idea of having SIP is to invest under all market conditions without trying to time the market. There is no particular good or bad time for SIP.
SIP can be started any time. Timing is required for lump sum investment and not for SIP investment. These days many fund houses have come up with tweaked SIPs where some timing element is introduced to increase or decrease the amount of SIP based on the condition of the market. Personally I feel that plain vanilla monthly SIP is the best. April 6, at 9: Granted that SIP is a very good mechanism for investing. I did a sample of SIPs started on Apr 1st of the past 6 years to examine the IRR Internal Rate of Return in a specific fund HDFC Equity which is a very good multicap fund.
This is different from the NAV growth that fund houses advertize. Here is what turns out:. Start Date IRR Apr 1, 4. Please note that the stock market crash of enabled the high return for the investment starting Apr 1, and I would treat it as an abnormal return. That is a classic scenario of doing a lump sum investment when most investors are extremely pessimistic — the Warren Buffett philosphy.
While the returns in the timeframe look reasonable not great , the returns during are just pathetic. Fund houses like Reliance were in fact charging 2. So it was more of an advertising tool to take in funds for the the fund houses and not a great deal for the investor.
My suggestion to anyone going the SIP route: You still need to get familiar with how it works, know more about the fund manager and the fund or alternatively go for the best rated funds and need to monitor it periodically. There are tons of funds which have disappeared over time or merged with other funds erstwhile Alliance Basic or have suffered performance degradation Reliance Growth, JM Basic.
Over a 1-year and 2-year period, SIPs look a very reasonable option.
Hi Sridhar I agree with what you have said. It is clear that if we select a fund merely based on its past track record it is quite possible that its performance can falter in future as has happened in the case of HDFC Equity, Reliance Growth and many more funds. We have to understand that investing is a dynamic process. We can not afford to sit tight on our portfolio. It has to be regularly monitored so that nonperforming funds can be weeded out. There are some funds like UTI Opportunities and ICICI Prudential Focused Bluechip Equity which have done much better than these HDFC and Reliance Funds.
Just a word of caution… HDFC Equity is not a peer of UTI Opportunities or ICICI Pru Focused Bluechip Equity and it is not a level playing field to compare. UTI Opportunities is a Large and Midcap fund. ICICI Pru Focused Bluechip Equity is a Large cap fund. HDFC Equity is a Multicap fund. I am a shareholder in all of them and they are all good. Plus they all originated at different times ICICI one starting just 3. April 6, at 3: Hi Sridhar I understand that you have to compare apples with apples and not oranges.
What I was trying to say is that it is not certain that the top performers of the past will perform in future also and even five star funds of HDFC can falter. Funds can lose and gain stars. So tracking is a must. In multicap category Quantum Long Term Equity has given comparatively better returns. April 8, at Quantum Long Term Equity is a great fund having been a top ranked fund courtesy Value Research for the past 5 years. HDFC Equity still has the edge in 5-yr returns btw. But it is not an ideal fund for most investors for the following reasons:.
Assets under management AUM is a low 90 crore while HDFC Equity has a AUM of around crore. Value Research requires a fund to have a 5 crore AUM to be rated but there is no other requirement on AUM.
That is a risky way of growing the consumer base since in India distributors are quite crucial. It has been my experience that managing through an aggregator is much simpler than managing directly with a fund house. The earlier point about AUM is a direct result of being direct to investor.
Quantum seems to diversified into multiple other categories Index — AUM 2 cr, Equity FoF AUM — 3 cr, tax Saving — AUM 4 cr, Liquid — 30 cr trying to find acceptance but not being able to get investor attention. When Fidelity AMC accumulated losses despite its flagship Equity fund clocking cr in AUM and being top rated almost the entire timeframe, things could be worse for smaller funds.
Quantum has the edge in 1-yr, 3-yr and 5-yr returns over HDFC Equity based on the current NAV. April 8, at 5: Hi Sridhar Before I started investing in funds of Quantum Mutual Fund I also had apprehensions. Then I got the opportunity of listening to Ajit Dayal.
I have read his articles and I am quite impressed with his philosophy. The main advantage of their funds is low charges which makes a lot of difference in the long run. March 29, at 2: For the one who has the time, acumen and more importantly temperament direct stock investing can provide the best long term returns. However a majority of the population does not have time.
Even if they have the time they do not have the acumen to pick the right stocks in line with their risk taking abilities. Even if the right stocks are picked one needs the temperament to hold on as long as the fundamentals are not broken,[A Technical pattern forming over days can be easily broken in trading sessions. Fundamentals do not change overnight.
March 29, at 1: Invest in any of the fifty stocks of NIFTY n i m sure that for a period of 5 years and above the return is much more than any other top rated Mutual Funds. This comes as a bit of a shocker given how much faith we put in the professional money managers. Can you name the funds?
As far as I know and you can also see.. So what you are saying it true for some funds which are bottom of the pyramid! I will give you a few examples which will contradict your original statement about nifty components beating the top funds. Just view the performance of BHEL, CIPLA, DLF and HINDALCO for the last 5 years using the link http: Compare the 5 year returns that you see there with the performance of HDFC Prudence using http: Mind you, Prudence is a balanced fund.
Returns are based on several factors. NIFTY is just one index which provides you a gauge for the market and never should wholly dictate what you invest in. My advice for you is to be stock specific. I own Prudence for 8 years now. I am an unfortunate investor in BHEL on the way down last year and optimistic that it will recover in years.
Probably yes but several of the Nifty stocks themselves lag the market big time over different periods of time. How does one guarantee they dont pick all 5 losers? Or even if 4 stocks gain and 1 lose how can they ensure they are at least getting the market return? For long term investments both stock and MF investments are safe and good.. I am sure you have a sound knowledge of investing.
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I started around last Diwali- but sitting on losses. Can you suggest please? April 5, at 5: One of the best books that I have ever read on stocks as a beginner years ago was by Peter Lynch, the fund manager for Fidelity Magellan during its best times.
Translate that to the companies that make those products. If you have to use them everyday think of the company that gets its money everyday. Think of all things that the company does to keep you and your friend as a customer. That is a good place to start! You can check out the comprehensive list at http: For a layman — there is no fortune — he could believe in fake mutual funds too.
The pro is the stock investor , who could employ the best analyst in the country at a nominal rate. I really agree with the above article. Direct equites should be only restricted to seasoned players …because todays indian markets is not driven by rationality … it is more of an operator driven where the strock is manupulated by the promoters small and mid cap for their interest …it is now a no more a value creation tool unless and until the fundamentals are really strong like ITC , Colgate , Nestle ….
MF gives the diversification to the whole portfolio and stability. For the wroking class majority should route through MF … the best tool for wealth creation in todays scenerio with medium risk. Invest in mutual funds if 1. If you are new to stock markets 2. You feel that you have done B. Com or MBA and feel that you can read balance sheet well. Balance sheet is not the only thing to look at.
Other factors like valuations of a stock, market volatility and market cap of a stock, promoter and other factors have to be taken care of 3. Invest in mf not stocks if you feel that your sub broker or your close friend can give you a share tip.
Share this Article with others Read more Articles from Jagoinvestor. Soma Mukherjee September 23, at 3: Manish Chauhan September 25, at Saurabh July 8, at 4: Manish Chauhan July 15, at 1: Nikunj September 15, at 7: Manish Chauhan September 16, at 7: Ray May 4, at 5: Manish Chauhan May 4, at 5: Nishi Kant Nirala April 18, at Manish Chauhan April 17, at 3: Manish Chauhan April 18, at 2: Nishi Kant Nirala April 12, at 6: Sridhar Venkataraman April 5, at 7: Rakesh April 1, at 3: Manish Chauhan April 2, at 5: Suman Gayen March 21, at 4: Manish Chauhan March 27, at Vivek K April 3, at Uttam Kumar Sen March 31, at Manish Chauhan March 31, at Sekhar March 30, at 9: SD March 30, at 1: Sekhar March 31, at 8: Is there any particular reason?
Sekhar April 3, at 3: So i also agree with Mutual Funds. Manish Chauhan April 3, at 4: Sridhar Venkataraman April 6, at VIJAY KUMAR TIWARI March 30, at Sekhar March 29, at Post that Infy has touched in Nov and trading at now. Sekhar March 29, at 9: Lets take 2 Mutual Funds A and B. SIP works and it works best in mutual Fund and works the worst in case of Equity SIP.
Sekhar March 29, at 8: Individuals can choose which way to achieve financial goals! Bhushan March 29, at 6: Bhushan March 30, at I thought I will pen down my views on this as well. Pro Money Investor March 29, at 4: Manish Chauhan March 29, at 5: Sumeet March 29, at 3: ANIL KUMAR KAPILA March 30, at 8: ANIL KUMAR KAPILA April 6, at 7: Bharat March 29, at 3: Sridhar Venkataraman April 5, at 6: Nevertheless, there is a lot that one can learn from his investing philosophy.
ANIL KUMAR KAPILA April 6, at 6: Sridhar Venkataraman April 6, at 9: Here is what turns out: ANIL KUMAR KAPILA April 6, at ANIL KUMAR KAPILA April 6, at 3: Sridhar Venkataraman April 8, at But it is not an ideal fund for most investors for the following reasons: ANIL KUMAR KAPILA April 8, at 5: Given these factors MFs are a better route for a majority of the population.
Sachin March 29, at Sridhar Venkataraman April 5, at 5: Nitin Gupta April 5, at 6: RK March 29, at Higher returns fro the Pro. Manish Chauhan March 29, at 6: Nikunj Rateria March 29, at Layman should definately take mutual funds route!
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