Shares or MFs? Where should your money go now?
There is one way of making money in the stock market: by investing in
stocks. Unfortunately it's the same way to lose money as well. The
saying stands true for all the investors, whether small ones like you
or me and the big ones like mutual funds and foreign institutional
investors.
We all at some point of time have lost money because we are not
equipped to time the market all the time or most of the time. Though
shares offer tempting returns it is surely not easy money. So, it's
always advisable for investors to take the mutual fund route for
investing in shares especially when we see the stock markets falling
by more than 450 points one day (June 4) and rising by more than 250
points (June 5) the very next day.
There has to be a reason or logic to justify the above statement.
Let's ask some questions and answer them ourselves honestly before
reaching any conclusion.
Question # 1: Can you buy 10,000 SBI [Get Quote] shares or 5,000
shares of Reliance Capital [Get Quote] on your own steam?
If yes, investing in shares directly suits you. If not then consider
mutual funds as your best friend.
One gets the benefit of pooling of resources in mutual funds which
results in proper diversification of ****tfolio. A diversified
****tfolio is less risk prone and gives healthy returns over a period
of five years.
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Market crash: A quick guide for young investors
A friend of mine was very bullish on the infrastructure sector and was
willing to invest in companies belonging to this sector a couple of
years back. With his limited resources he could afford a bit of GMR
Infra or L&T or JP Hydro. Sanity prevailed and he went in and invested
in Tata Infrastructure Fund; though the stock market melted post
January 2008, his fund value still remains in the green (profitable).
Question # 2:: Where does Tata Steel [Get Quote] buys Coke from? Name
Infosys' [Get Quote] top five clients in the USA?
If you know the answers to both the questions above then again you can
invest on your own. If not, go for mutual funds that invest only in
blue chip companies.
An investor is not supposed to thoroughly track the balance sheets of
companies (they give you a sense of a company's profitability), nor is
he supposed to know the minute details of the companies, markets or
global economies.
When we can outsource the same to the best people in the industry
(read fund managers) then why do it ourselves. The knowledge and
capability possessed by mutual fund managers always give them an edge
over an individual investor like you and me.
Question # 3: Can you track the market for more than five hours every
day right through Monday-Friday (Stock exchanges begin business at
9.55 am and close the day at 3.30 pm)? Can you hire people to manage
your ****tfolio?
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10 stocks to make young investors crorepatis
If yes, investing directly in shares is your cup of tea, if not you
know what to do by now.
As stated earlier, timing is very im****tant in stock markets to make
money. For instance, if you have invested money in 2005 and sold all
your shares by December 2007 you would have made a neat chunk of money
for yourself. Alas, that must not have been the case!
Out of thousands of companies listed on our stock exchanges to
ascertain which is the right time to buy or sell is a tough nut to
crack. Investors with small ****tfolios find it difficult do it and end
up having inferior ****tfolios.
MFs have full time fund managers, well-established and professional
research teams who are paid to do good research on stocks, to closely
monitor them day in and day out and to update/churn (buy/sell) the
****tfolios regularly with the express intention of giving good returns
to the investors.
So, if you are the one who likes to have complete piece of mind,
decent appreciation and ac***ulation of wealth in the long term mutual
fund is the right answer for you.
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