Investment – Mutual Fund Vs Stock Market

POSTED BY Amit ON June 27, 2012 10:22 am COMMENTS (11)

Yesterday I read one article in Times of India. As per that article, investor get better return by investing in Mutual Fund compare to Stock Market. They also explain this with equal investment for same period in both Mutual Fund & Stock Market and the results are positive for Mutual Fund.

Need input from experts @ Jago Investor

11 replies on this article “Investment – Mutual Fund Vs Stock Market”

  1. Renu Chauhan says:

    Very Well Said Debanjan 🙂

    Amit,

    In simple words just a quick check of how much you have invested in each category every year is essential to view in which direction your investments are going 🙂

    Thanks ,
    Renu

  2. debanjan2008@gmail.com says:

    Let us learn through an example that what is rebalnacing. Suppose you have invested 50000 in equity funds (50 per cent of the portfolio) and 50000 in debt funds (the other 50 per cent). For the sake of simplification, let us assume that the equity funds have doubled in their value. And its new value is 100000.

    So now your equity holdings has increased from the original asset allocation.

    The process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.

    Depending upon your stage in life and your financial plan, this happy development may mean it is time to rebalance.

    Go through the following link to know more: http://www.fundsupermart.co.in/main/research/article-Stay-Invested-and-Rebalance-to-Avoid-Bad-Times-669.html

    The investments in a portfolio will perform according to the market. As time goes on, a portfolio’s current asset allocation will drift away from an investor’s original target asset allocation (i.e., their preferred level of risk exposure). If left un-adjusted, the portfolio will either become too risky, or too conservative.

    It’s vital to revisit and monitor your portfolio at least annually to check on the status of your allocations and make sure your investment funds are performing as expected.

  3. Amit says:

    Thanks Debanjan.
    But what is actually portfolio rebalancing? what does one do while rebalancing the portfolio?

  4. debanjan2008@gmail.com says:

    The three most common reasons why retail investors do not invest into MFs could be:

    1. Lack of time – 2. Lack of resources and 3. Lack of knowledge –
    If you are starting out as an investor, then there are chances that of all these thoughts have crossed your mind.

    1) If you are a long-term investor then monitoring your portfolio once or twice a year makes sense. One does not need to monitor his/her portfolio on a daily/monthly basis unless the investment is for a short term.
    However, you should try to rebalance your portfolio on a periodic basis. Rebalancing helps you protect against downside and ensure that you maintain the risk-reward ratio in your portfolio as well as take advantage of the market situation.
    2) To invest on a monthly basis, Mutual Funds provide the Systematic Investment Plan (SIP) route for retail investors. All you need is to choose the funds and get started. For SIPs, the minimum initial investment for most funds is INR 1000 per month. However, some funds houses have lowered their monthly amount to INR 500, so that more and more people can invest in mutual funds.
    3) Investing into mutual funds is very easy compared to other asset classes and moreover they are managed by professional fund managers who know how to allocate and manage the money in volatile market situations.

    These are the major advantages of mutual funds, which distinguishes itself from stocks.

  5. bharat shah says:

    one more favorable point about mutual fund investing is safety : as they are non transferable, the chances of fraud- by transferring through forged sign. is not there. it happens sometimes in case of direct equity.

  6. Amit says:

    Thanks Renu…

  7. Renu Chauhan says:

    Hi Amit,

    Although I am not an “Expert” here but ya as a lay man would like to answer this question.

    As someone correctly said that “Timing the equity markets is not everyone’s cup of tea”.

    I guess that article must have meant that for a novice investor like ME mutual funds are a preffered option as I cannot dedicate the time and strength required in choosing the right equity stock. And who knows the same paper might come up with an article stating that if you would have invested in Reliance or WIpro stocks 20 years back, you would have made a wonder story today..

    So i would suggest instead of believing such article just do a check that do you have the time, strength and knowledge required to time Equity Markets, if not then choose a mutual fund which is managed by an experienced (not choosing the word EXPERT) Fund Manager. But yes that would also require some commitment from your end to keep a track of your investments as Fund Manager’s performance again is subjected to market risks 😉

    Thanks & Regards,
    Renu C

  8. Amit says:

    Thanks a lot.

    For the article please check page 15 of yesterday’s TOI.

  9. Jugger Naut says:

    I’ve heard of people claiming fabulous profits with day-trading in shares, sometimes.
    But those people havent gotten super rich when I meet them a year or two later.

    I myself have tried long-term investing , relying on value investing principles, and been successful in buying at low prices, on Tata Motors and LIC Housing.

    But it took me lots of effort to study their fundamentals and they way their business would go in future. I find that personally I cant devote that much time to this study, continuously.

    So I prefer mutual funds in the medium term. In MFs too, I can see that most actively managed funds do nothing great for you.They have big management expenses and little to show.
    So I think making SIPs in index funds is a sensible thing for a start. You may not have profits to show after a year or two, but in the long run you would have mush less tensions.

  10. Dear Amit, For a common man like me & you, who does not know much in stocks, MFs are a preferable route for investment.

    Thanks

    Ashal

  11. TheZionView says:

    Amit,

    Please provide the link to the article.

    Equity Mutual Fund is one of the ways to invest in stock market. So comparing stock market vs mutual fund is ridiculous.

    What Mutual Fund does is get money from people and invest in stock market with their experts picking up the stock.

    What that article could have meant is for person with limited knowledge on stock market its better to go for mutual fund route

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