What should I invest in- mutual funds or direct equity?
Hi Fpguru,
I just went through your website & found it very informative. I would like to ask a question regarding my investments.I have invested in couple of mutual
funds & some midcap stocks advised by my broker. The mutual funds were advised by a familyfriend who is an avid reader of some mutual fund websites & magazines. These mutual funds have performed better than the midcapstocks advisor by my broker who is in the business for so long. How come an expert has been beaten by my family friend? Also I don’t havetime to actually track my investments. What should I invest in- mutual funds or direct equity?
Regards,
Nikhil Lakhiani
Dear Nikhil,
Thanks for the feedback! It is truly appreciated. Keeping in mind your time constraints, we feel you should invest in mutual funds rather than direct equity. This is because though direct equity is a very good way of taking equity exposure at very low cost (only one time brokerage & Demat charges) it is still very confusing for the novice or time-constrained investor. If you are a defensive investor, you can definitely invest in good quality blue-chip companies. These are not very difficult to search for, just look at the stocks in the premier indices like Nifty or Sensex & buy those. Finding quality midcap or smallcap stocks is a different story altogether. You will need to study the company pretty well before investing, which is not easy for everyone.
Stock brokers usually advice stock picks on a research report of their company. The important thing to note is the time horizon for the stock target. Only stock picks for a period of more than one year should find way into your portfolio as the same are investment picks. Less than one year stock calls are usually trading calls. These are not meant for investors but for traders. You need to ask your broker on what basis did he advice you these stocks. If he says investment, then give the stocks some time or review the same with a financial planner. If he says trading, then ideally exit the stocks & reinvest funds in a bluechip stock of mutual fund.
Here is where mutual funds beat direct equity exposure for time- constrained clients like you. You can invest in a good midcap fund & get professional experts to buy shares & track them for you. You just need to keep track of the NAV, which is a very simple & available online. Any investment however should be made with your time-horizon & financial goals in mind.
Hope this cleared your doubts.
Regards,
Fpguru.com
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