Stocks or Mutual funds? Our views.

Every literate person in India has heard of the word ‘Sensex’. They know Dalal Street and the stock market. The newspapers carry articles regularly about the stock markets. Atleast when the market crashes, most of us get to know. There are a lot of mental images we associate with the stock market.

Stocks offer the most potential for growth:

Stocks have historically offered more potential for growth over the long term. That’s why investing in stocks, or stock mutual funds, is so important when saving for retirement or other far-off goals. This is true for India as well as the US. If you see the below chart it is obvious that Equity as an asset class has outperformed all other asset classes in the long term. Despite all the greed, wrong dealings, fear and negative publicity associated with the stock markets, Equity shines. The best of the minds work behind the scenes in this complex institution which is why Finance as a career is such a lucrative option.

stock market returns India

Stock market returns India

Stock market returns

Stock market returns in US

Is it good for retail investors?

But, are most of us qualified to play the stock market game? Traderscockpit is a premium player for retail investors playing the equity game. We have tools and trainings to cover the rookie investor and the sophisticated trader.

But, if there is one thing that we have learnt along the way, it was this. It’s still a tough and time consuming game to play, for someone with a regular job. Downs are inevitable and we’re not psychologically primed to face losses or wait it out. We aren’t the most logical or rational creatures as we claim to be.

Individual company’s stocks can go up and down with the wind. Even most professionals can’t predict them well enough to beat the market and everyone takes a beating once in a while. So, let’s forget beating the markets for now.

Investing in individual stocks is fun and extremely rewarding, but it’s also risky and cumbersome. You have to research, purchase, track, and sell each stock in your portfolio. If you have dozens, it can be the equivalent of a part-time job.

Also, Indians as a demographic are very risk averse compared to many other countries. We still love our FDs and real estate and gold, though we’re opening up to other asset classes slowly and steadily.

So, what our team thinks is, you can avoid all of that hassle by investing in mutual funds. Most of us don’t have the time and sufficient knowledge and emotional resilience to weather out stock market storms. In this case, Mutual funds are a fantastic avenue to explore. Someone much qualified than you breaks their head as to which stocks to invest in, how the market is moving, how the interest rates are headed, how the global economy is performing, etc. You can beat the returns of an FD while saving on taxes. Equity mutual fund schemes too are exempt from long term capital gains. You can easily calculate how much your portfolio has grown by tracking the NAV and units you hold.

Given all these advantages, plus very strict regulations from SEBI Mutual funds offer the most transparent and best avenue for retail investors for long term wealth creation. You can choose funds to suit your risk profile, you can invest very small amounts, you can invest regularly (through SIPs) and be assured that your funds are in good hands.

Learning how the stock markets work is a great educational experience. If you want to learn about how the stock market works, we can get you started with our Technical Analysis workshops and free webinars. But, end of the day, unless you’re willing to dedicate your career to the pursuit, you’re probably not going to beat the returns you can get with a top rated mutual fund by picking individual stocks yourself.

Here are some resources to familiarize yourself with Mutual fund basics and resources to track the best mutual funds.

Video Resources to learn basics:

Franklin Templeton Academy courses related to Mutual Funds.

IDFC MF – How Mutual funds work?

IDFC MF – Why should you invest in Mutual funds?

Resources to pick the best funds:

Advisor Khoj’s recommendation for Top performing mutual funds.

Planmoneytax’s detailed choices for 2016 winners.

Moneycontrol top rated funds.

So, happy Investing to you all!

About the author

Subha Viswanathan

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