You must have heard that mutual funds are better than stocks because they give a steady return on investment. It has been a topic of fascination for a while now to compare mutual funds and individual equities as investment options. Although there is potential for financial growth in both directions, there is a strong argument in favor of mutual funds over stocks. The article will present 5 reasons mutual funds are better than stocks.
Mutual funds and stocks are the popular modes of investment that help investors to create a portfolio and increase their wealth. However, the mutual fund contains a group of stocks but they are completely different. A stock is a single share of ownership in the company, on the other hand, the mutual fund is a pool of funds invested in multiple stocks by the fund manager.
5 reasons mutual Funds are better than stocks
1. Mutual fund is managed by the fund manager
The mutual fund is managed by the fund manager and you need not observe the fluctuations in stock prices. The fund manager observes the stocks that have given good return and sell them when the price goes up. The stocks are purchased again when the price comes down. This process continues and profit is distributed in the form of increased NAV (Net Asset Value).
2. Less risky
Investment in mutual funds is less risky compared to stocks. One of the reasons is the stock diversification within the fund. This means if one of the stocks decreases, the other might increase. In this way, the balance is maintained, and overall the mutual fund investor is in profit.
3. Less Stressful
Unlike stocks, mutual funds do not require constant observation on a daily basis because the funds are managed by experienced fund managers. The fund manager tracks the stock prices for buying and selling.
4. Instant diversification
Because you are investing in a basket of assets, you have instant diversification and lower risk and there is no need to buy multiple invisible stocks to diversify the portfolio.
5. Variety of fund types
There is a variety of funds like small-cap funds, mid-cap funds, large-cap funds, index funds, etc. You can observe the past year’s return and select the best as per your risk-taking capability. You can simply download, the ET money app on your smartphone and get a variety of fund options.
No need to have Demat account
To invest in mutual funds, there is no need to have a demat account which is a necessity to own the stocks. The mutual funds can be directly purchased from the fund house or Bank and you will be issued a document mentioning the total investment, NAV, date of investment, etc.
All-in-all, the article presents 5 reasons mutual Funds are better than stocks. The analysis presents a close comparison between mutual funds and stocks.
Frequently asked questions
What are the consequences of withdrawing from mutual funds?
You can miss the returns that you are likely to get if you keep the funds invested.
Which are the best funds to invest?
Index funds move with the change in the index. You should prefer investing in index funds or large-cap funds. You should observe the past history of mutual funds.
Disclaimer: If you want to invest in the stock market, you should consult your financial advisor before making a buying decision. You should assess the risk and study the company details.
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