BENEFITS OF INVESTMENT IN MUTUAL FUND VERSUS DIRECT STOCKS

Mutual fund is a financial instrument which pools the money of different people and invests them in different financial securities like stocks, bonds etc. Mutual funds are managed by asset management companies (AMCs). AMCs appoint fund managers to manage different mutual fund schemes and ensure that the scheme investment objectives are met.

Here are 5 major benefits of investment in mutual fund.

  • Risk Diversification: The biggest advantage of investing in mutual funds versus stocks is risk diversification. Every stock is subject to three types of risk – company risk, sector risk and market risk. Company risk and sector risk are unsystematic risk, while market risk is known as systematic risk. Even if company performs well the stock price might still fall, when the market falls.

 

  • Smaller Capital -Investors will require a large capital outlay to build a diversified portfolio of stocks. Whereas mutual funds work on the basis of pooling of money, mutual fund investors can have the beneficial ownership of a diversified portfolio of stocks with small amount of capital.

 

  • Range of Product Offerings- Mutual fund are designed considering investors risk profiles and investment objectives. Apart from equity funds there are also balanced funds, debt funds, monthly investment funds, liquid funds etc.

 

  • Disciplined Investment- Share prices are highly volatile and can induce the investor to buy or sell in short time periods due to fear or greed.Many investors fail to build a substantial investment corpus because they are not able to invest in a disciplined way. Systematic investment plans helps investors to take emotions out of investmentand manage disciplined investment at regular intervals.

 

  • Investment Expertise- Many retail traders have lost their money because of poor trading knowledge and expertise. Mutual fund is managed by professionals who are experts in picking right stocks to manage risk profile of portfolio of an investor.
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