Do I Invest In Equities Or Mutual Funds? Are The Two Different?

While an educated investor might be able to invest in both equities and mutual funds, a newbie investor or one who has not studied the market in great detail would be better off choosing to invest through mutual funds.

Many investors believe that mutual funds and equity investments are just the same, that mutual funds are simply a pool of equity investors with perhaps a manager to keep track of everyone's money. But the differences go deeper than that.

Time Spent Managing your Money

In order to successfully manage your equity investment, you would need to constantly study the macro environment, the industry, and the company, and make sure that your investment is producing good returns. By investing your money through mutual funds, and letting a professional team of fund managers look after your investment, the amount of time and effort that you need to invest comes down significantly.

Differences in Risk Appetite

With mutual funds, you can choose how much of your money you want invested in equities and can also spread your investments to debt instruments that are relatively low risk. Also, knowing how much return you want in what kind of a duration, lets you plan your investments better through mutual funds than the more volatile direct equity investments.

Syncing with Long Term Goals

Most people approach direct equity as a short term plan. A quick deal here, and a quick buck there. However, it is important to treat investments as a long term plan and to sync your investments with your future needs in order to get the best value out of your money. While it is definitely possible to invest in equities with the long term goal in mind, it is simply much easier to do so with mutual funds because the fund managers help you plan out your investments in a structured fashion.

Choice in Stock

When investing directly, the investor has the complete control over which stocks to invest in and how much to invest in each. When investing through mutual funds, the fund manager makes the decision and the individual investor has no say in what the money gets invested in. Is that a disadvantage? Not if the mutual fund is run by an experienced fund manager and his team of experts and analysts. A good fund typically passively tracks over 1000 companies, and actively tracks around 500 companies. After all, such a manager is likely to have a better idea of the well performing stocks and industries than the average uninformed investor.

Tax Benefits

The interest that is earned through mutual fund investments is subject to exemption up to certain limits, under section 80C of the Income Tax Act. However, direct investment returns are subjected to taxation.

At the end of the day, choosing to invest directly in equity or in mutual funds is entirely up to the discretion of the individual. However, mutual funds provide several benefits of efficiency, industry knowledge and understanding, and tax savings that the investor would be better off taking into consideration. Also, use efficient advisors like Wealth Central, to ensure that your time is freed up more to pursue work, other investment or business opportunities, or even a passion or hobby.