Should You Invest Money In Mutual Funds Or Stocks?

Mutual fund investment has become the “go-to” option or a trend in the recent decade and a half whenever people think about multiplying their earnings or savings. Investing in mutual funds however has surged among the different age categories of people especially post-pandemic which was not the case before. In general, it was always the people who belonged to the 40+ age category who invested quite aggressively in mutual funds and even other types. But after the year 2020, when the world came to a standstill, people went through a lot of hard changes but eventually understood the new world post-pandemic will not be the same anymore. Hence, people across not just various age categories but even across different fields of industries realized that they should not just trust in saving money efficiently but also learn to multiply by investing it wisely. After the 2020 hiatus, many people took up entrepreneurship way too seriously as so many companies laid off staffs both temporarily and permanently due to the losses they incurred. And this caused a sudden shift in the employment trend and also the investment style by the newly turned entrepreneurs. People not just made investments but also learnt and implemented methods to compound money quite aggressively.

The onset of new business models and newly formed micro and macro organizations either home-run or by collaborations have begun a new era for sure. Youngsters have been the major entrants into stock investment as they are more tech-savvy and do not shy away from learning more about investments and constantly keep upgrading their investing styles. So, this has made them take up the mix-and-match route by which they are wisely splitting their money into direct stock investing methods and also look out for the best mutual funds to invest in for long term.

Understanding About Investing In Mutual Funds And Stocks

Before looking into the difference between direct stock investing and investing in mutual funds, let us look at what their commonality is which will make it easier to understand their purpose. The commonality is that both these stock investment types are used to buy shares of a company or companies. Also, a mutual fund investment allocates your money to buy other entities such as bonds, equity and so on. So, it is now clear that the ultimate goal of both these types of investments is just the same. This might make you wonder why most people hesitate so much in deciding between the two options if the end goal is just the same. Well, that is because of the working functionality between both these stock investment methods.

In the direct stock investing type, a person gets to buy stocks of a particular company or multiple companies by himself or herself. But the catch is that the person who wishes to buy stocks has to do all the analysis oneself. Now, to be fair and to make an honest declaration, it is not easy to do the so-called fundamental analysis. If that is the case, performing the technical analysis is even tougher when done by oneself. Especially, for beginners it will be such a hard task to accomplish but in time, yes. But "how long" is the question that one should find the answer to.

How Different Is A Mutual Fund Investment From Stock Trading

Well, it can be truly overwhelming to realize the fact that stock investment is a very deep subject but this is exactly where mutual funds can look highly attractive. While investing in mutual funds, you are not going to do the analysis and buying part which will be done by the experts saving you from all the tough challenges of identifying the right company or companies to target. Experts called fund managers are available and they do all the technicalities needed and take care of your invested money which is the prominent variation between direct stock and a mutual fund investment.

Functionality Of Mutual Funds

Moving on from the fund manager factor, there is another key benefit of investing in mutual funds which can be termed as their functionality without any speck of doubt. In a mutual fund investment, the money you have invested in is not targeted at one particular stock or a company but rather it is split and invested in stocks of different companies and other entities across various sectors of the market. Now if you are pondering whether or not a retail investor can buy stocks of different companies to maintain a diversified portfolio, the answer is a definite yes. But this is the exact spot where a fund manager’s experience and knowledge prove to be wealthy over a retail investor’s brain. Well, looking down upon any retail investor is truly not our intention but it takes an enormous amount of meticulous calculation and diligence which might take years to get them right. But while investing in mutual funds, you do not have to stress about whether you are purchasing the right stock or is it the right time to do it and so on.

Benefits Of A Mutual Fund Investment

If at all you feel that maintaining a diversified portfolio alongside having the expertise of a fund manager to rightly utilize your money invested are great benefits of investing in a mutual fund, you should focus on the forthcoming ones. We did speak about retail investors too having the skill to perform a variety of technical analyses alongside a properly researched and well-understood fundamental analysis earlier but what makes a mutual fund investment methodology stand out! Well, it is the part that comes after the fundamental analysis is done which is called the market trend or market fluctuations. And this can be highly tricky for any retail investor, be it beginners or the experienced ones making them go crazy at times while choosing between the different stocks of companies available in the share market. Furthermore, fund managers can and will not just understand the different trends in the market but also get to know the key factors that influence the business models of different companies. But how do they do it? With the help of news and information, and not just with fundamental and technical analysis. And when we say news and information, we do not mean the ones that get published in the newspapers and broadcasted on television channels but we do mean many documents alongside them. Fund managers who own highly valuable experience in the field of mutual fund investments know how to read different documents related to them such as balance sheets, AGM reports, and so on and more significantly, what to look out for in them. This enables fund managers to understand and gain more technical insights about the companies’ business models and future plans which makes them decide whether or not to invest in their stocks and other entities as well. Apart from the above-mentioned advantages, the following points are also some benefits of investing, especially with mutual funds in India.

• The most alluring feature of a mutual fund investment is the SIP method. A Systematic Investment Plan (SIP) is a feature that allows the investor to pay small amounts of money every month for a specific set of time-period.

• The benefit of a SIP plan is that it can be a very small amount from as much as INR500 to any amount going forward that can be paid while investing in mutual funds.

• In direct stock investments, chances are really high that the retail investors can go wrong with their calculations and buy or sell stocks at the wrong time but in SIP-based mutual funds, the fund managers are aware of how the market will behave. This makes the fund managers diversify the portfolio accordingly ensuring high profitable returns.

• There are a plethora of mutual fund investment plans to choose from in the market and all of them are headed by fund managers. Every SIP plan has its own strategy of targeting a set of companies based on their market cap, type of sectors and so on and fund managers know best about how to allocate the invested money.

• Mutual fund portfolios are rebalanced quite frequently sometimes even on a monthly basis if required and this practice actually gives the investor higher chances of profitable returns for the money invested every month. Now, this action of diversifying portfolio quite frequently can be a highly tedious job for retail investors as it is practically not possible to read or know every news about all sectors of the share market.

• More significantly, for beginners who are on the lookout for the best mutual funds to invest in for long term, the knowledge of a fund manager can be truly precious as that will lower the risks of incurring losses due to share market fluctuations and maximize returns.

• Also, more investors in India are people belonging to different fields of industries and specifically from the working middle-class sector. This can make things hard for them to find time to learn about market trends but they have a keen interest in stock investment and trading. For them, targeting the best mutual funds to invest in for long term can be an amazing idea as it will help them in formulating a retirement plan for a peaceful life years later.

By now, you should be having a fair bit of idea about how a mutual fund investment works and what are the factors to be taken into account that can help you to maximize the profit returns for the money you are about to invest. It cannot be made as an outright declaration that putting your money into stock investment directly is completely risky but it is highly safe to say that mutual funds are a far better option when it comes to handling risk and multiplying your money’s worth. And the good news in recent times is that a great number of youngsters are showing interest and many have already turned towards investing in mutual funds in India especially, after realizing how profitable they are. Furthermore, in this post-pandemic world that is adapting to a state of new normality, investing your money is a wise idea and more significantly, choosing the best mutual funds to invest in for long term is ideal. The long-term SIP plans are not just a great source of alternate income but in small amounts, you are making your future and that of your family truly secure which will in turn give you great happiness and peace!