Mutual Funds VS Stocks
While mutual funds continue to be synonymous with the more traditional base of investors, stocks retain the eternal zeitgeist of being something prone to considerable risks.
So which is better? Essentially, be it mutual fund investment or stocks, the extent of one’s merit over the other cannot be undermined absolutely objectively. Since the merit of any investment scheme must factor in the subjective preferences of the investor involved, both of the equally investment types may be treated only relatively and contextually.
While both mutual fund investment and stock investment have their prejudiced backgrounds, it is, therefore, essential, to begin with, the beginning. Indeed, while reliable investment remains the core concern for traditional investors, those who look forward to risky, short-term investment ventures generally veer towards the stocks. As a result, people generally assume to prefer the former to the latter.
Why Stock Investments?
Or the query should be: why not stock investments? Essentially, it is self-evident that performance at stocks depends acutely on the volatility of market trends. Moreover, unlike mutual fund investments, stocks need to be managed by the concerned investor who has a fair share of claim on and can tackle the menace of constantly whirling market values.
First and foremost, it is imperative to note that more often than not investing in stocks is goaded by appetite, not exigency. In other words, thanks to the risky nature of stocks, potential investors are steered towards them more out of venturesome appetite, not any pecuniary urgency. Consequently, where exigency is not as involved, the pursuit may be likened to an adventurous, sportive exercise.
This is not to desecrate stock investment as something less solemn or tuck it away into rogue corners of the game. On the other hand, this would be a gigantic misinterpretation of the events. Fundamentally, the reason why stocks retain their popularity among only a clique of wealthy individuals is that stocks are more of an exercise in primary engagement in thorough investment, and not a means to secure any ulterior motive.
Consequently, it is less renowned among the common lot who press for investment in order to address pressing events. According to a study conducted by the Economic Times, only around four percent of the whole market capitalization in the country is held through equity funds. Apart from that, one needs to factor in such concerns as one’s premonitory cognition and potential to tackle the strains of a share portfolio.
And it is therefore that stock investments are generally limited to the persons of business and the like. Also, it is important to keep in mind that one should possess a thorough knowledge of intricate knick-knacks of the stock movements. Keeping aside the ever-gnawing aspect of risk appetite, one should also pay attention to the extent of one’s returns expectations. Indeed, the natural tendency of a majority of the population is to veer towards more traditional forms of investment.
The fundamental features of stocks which keep traditional investors at bay include:
- The volatility of stock markets remains one of the most considerable concerns. Naturally, changes in the market winds remain beyond the control of the concerned investor. Also, the price of a single stock is subject to the wildest variations from day to day. Any traditional investor can only despair of the recurrent price fluctuations.
- It is imperative to keep in mind that with retirement years inching closer, any investor would do well to shift a considerable chunk of their essential retirement funds to safer spots. Naturally, with age investors are less likely to cope up with the pressures of stock dealings. As a result, one needs to shift the money to stable, conventional instruments eventually.
- Brokerage commission is an important aspect to be factored in against the backdrop of investment in stock markets. Buying and selling stocks is executed in the form of relevant brokerage commissions by the concerned firms which charge a significant amount of maintenance fee as well.
- Consequently, a potential investor should be judicious enough to consult more Spartan alternatives while buying and selling stocks. Also, versatile stocks retain their popularity among the big investment companies. Generally speaking, small to medium investment enterprises cannot afford possibly shoulder the hysterics of a variegated portfolio.
- Possibly one of the leading demerits why a traditional investor stays away from stock markets is the fact that stocks are a time-consuming Consequently, thanks to the risks involved, many investors tend to avail of the buy and hold policy in order to come out of the investment at an appropriate time - and it is precisely this which demands interpretive cognition.
- As mentioned earlier, stock markets expect a through an educative approach on the part of the potential investors. First and foremost, it is important to keep in mind that stock markets throw up a plethora of choices. Indeed, the set is bafflingly diverse, thereby making it strenuous for the potential investor to make the appropriate choice.
The aspects above reflect the real deal of investment in stock markets. They are not meant to forbid potential investors from taking up investments in stocks altogether. What they intend to achieve is a considerable reflective exercise on the part of the concerned investor. Moreover, there are many merits of an investment in stocks, too. Obviously, the most evident advantage is the considerable rate of returns. Indeed, it is the rate of returns which lures investors from all spheres of the market.
Stock investments are popular, not conventional. A majority of the common mass would invariably look forward to the more traditional means of investment such as mutual fund investment in order to cope up with exigent financial concerns. Moreover, such pressing concerns as retirement and educational corpus retain their exclusive significance in the lives of the common man. Towards that ambition, it is imperative to consult the more stable forms of investment. Mutual funds are only one of them.
Mutual Fund Investment
Coming to mutual funds, they are essentially meant to serve the varied interests of the common man. Indeed, compared to stock investment, mutual funds are safer and more reliable. What is more, they are relatively simple to comprehend and do not claim any kind of extensively studious engagement on the part of the investor.
Mutual fund investments address all the relevant issues concerning the common man. For instance, such sensitive aspects as education, healthcare, and retirement assets are taken due care of by mutual funds. Importantly, mutual funds are affordable and, irrespective of the kind of investment option, least associated with risk. While the price of stocks could alter within a spurt of days, mutual fund investments furnish much more stable returns.
Possibly one of the leading aspects of mutual funds is that there is one for every kind. In other words, mutual funds address a wide range of customer preferences and priorities. Apart from that, a majority of mutual funds furnish a professional fund manager so that the concerned policyholder need not bother about the happenings in the least. The fund manager comes in handy and is stable and reliable guidance to the policyholder.
Given the easy viability of mutual funds, it is worth noting how far they have scaled. According to a study, around a fourth of the leading twenty-five equity mutual funds were replaced by new funds every day. Besides, it is equally worth noting that the annualized returns of the equity mutual funds over the last decade surpassed the Nifty.
However, popularity cannot alone be the indicator. It is equally important to consider the specific benefits of mutual funds and why they are preferred so much. First and foremost, one of the leading merits of investing in mutual funds is that the policyholder need not plunge in the waters of a versatile portfolio.
Indeed, the central concerns are taken care of by the concerned fund manager. Specifically, investing in mutual funds has this extraordinary benefit of scoring a diversification point without even having to engage with a literally diverse portfolio. Apart from that, mutual funds are less costly compared to direct stock investments and do not require a demat account.
Additionally, there is a defined time period so that the investor need not toss and turn over the eventualities. Besides, mutual fund investments do not actively count on the recurrent market trends, thereby assuring their innate stability.
Why Mutual Fund Investments?
First and foremost, it is important to consider that mutual funds reduce transaction costs for concerned investors. As mentioned before, the concerned policyholder is essentially capacitated to diverse without having to shell out numerous commission charges.
Liquidity is a major reason why mutual funds retain their popularity among investors. In fact, one can easily sell his or her mutual funds within a short span of time without having to consider the difference between sale price and the current value of the stocks. Indeed, it is precisely this processional ease which makes mutual funds so popular. Indeed, liquidity remains a major factor so far as the day to day proceedings of the policyholder is are concerned. The ease with which one can get in or get out of a mutual fund scheme is without any parallel.
Mutual Fund Industry in India
Thanks to the majority of the Indian population switching to mutual funds, the potential of the mutual fund industry is more than huge. Already, it is a fact that the savings of the Indian households amount to around Rs. 30 lakh crore. Indeed, this spells a formidable future for the growth of the mutual fund industry across the many swathes of the country.
The savings are especially advantageous in that they may be effectively channeled towards the mutual fund industry. Indeed, it is the culture of saving up for future needs which defines the characteristic trait of a majority of common Indian households. Consequently, as of now, the country has forty-two mutual fund houses managing an aggregate of around Rs. 23 lakh crore.
Additionally, it is important to note that on a year to year basis, the mutual fund industry witnessed a growth of around twenty per cent. Also, the assets under management grew by 1.20 per cent to the tune over Rs. 20 lakh crore in the month of June.
If the decade bygone is considered, the Indian mutual fund industry has scaled a twelve per cent growth annually. Moreover, it is essential to underscore the fact that the share of mutual funds in the amount seeping into the capital markets rose to around eighteen per cent this year, compared to a meager eight per cent just four years back. On the other hand, it is equally interesting to note that the share of foreign investors registered a sharp descent to 55 per cent from the previous 61.2 per cent.
Also, the share of mutual funds has clocked a sharp increase to fourteen per cent in the last three years. Consequently, it is worth noting that the number of individual investors has increased by a considerable degree. According to the latest reports, the mutual fund industry in India had in March around seventy million individual portfolios. Additionally, over sixteen million more were added in the span of thee sixty-five days. What is more, the number of SIP accounts has doubled in the last two years.
As the facts aforementioned show, the mutual fund industry has a glorious future in the country. Essentially, one must keep in mind that mutual funds have been designed fundamentally to address the varied regular concerns of the common man. Apart from that, their innate stability and least risk factors, mutual funds are indeed a boon for the common lot.
Precisely, before investing, whether, in mutual funds or the stock market, the potential investor should be clarified about his or her own peculiar preferences and monetary exigencies. Any investment should take these factors into account in order to further the prospects. As mentioned from the outset, the success of an investment counts acutely on the individual coordinates of the investor concerned.
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