Investing in Mutual Funds vs. Direct Equity Investment in India
The ultimate goal for each investor is the same – wealth creation! While the destination is the same, there are different routes that you can take to reach it. You can either invest in mutual funds or you can directly buy equity share or stocks from the open market. Each route has its set of pros and cons. In this article, we will analyse these two options and help you figure out which is the better route based on your requirements.
Direct Equity Investment
Direct Equity Investment is an active approach to investing. In this route, the investor takes the decisions regarding which stocks to invest in, when to buy/exit, etc. While investing in direct equity, brokerage charges are applicable when transacting via an intermediary. Direct equity investments are best done by those who understand the workings of the stock market and have time and capability to monitor and research individual stocks.
Mutual Funds
This is the passive approach to investing. Mutual Funds pool in money from a large number of investors and invest across multiple stocks/asset categories as per the scheme’s objective. The portfolio is managed by professionals who are equipped with the required knowledge and resources.
Direct Equity vs. Mutual Funds – which route should you take?
To answer this question, you will need to consider the below factors:
1. Market Expertise
Stock investments are not lottery tickets where you can invest in anything and then wait for your luck to work its charm. It requires a great degree of knowledge, analytical skills and experience to choose the right stocks for your needs. There are too many dynamics to be considered. If you have a thorough understanding of the markets (and economic factors impacting it), direct equity investments are ideal for you. On the other hand, if you are a novice, mutual funds should be your go-to channel. If you are not comfortable choosing which mutual funds to invest in, you can take the help of financial advisors as well.
2. Time for research
Studying, tracking and analysing the stock market and related economic factors is a time-intensive activity. If you feel that you can devote adequate time in analysing the markets and monitoring their investments, you should opt for Direct Equity. Else, you can go the mutual fund route. Mutual Funds corpus is managed by professional experts (fund managers) who are skilled and trained in that domain.
3. Diversification
The USP of mutual funds is diversification. They offer exposure to a wide range of stocks which form part of the portfolio. Even if you invest a small amount (let’s say Rs. 5,000), your money will be spread across multiple stocks. In the case of direct investments, you can purchase only a limited number of varied stocks. To achieve the same diversification level (as offered by Mutual Funds), you would need to have a higher investible corpus. It also depends on your risk appetite. If you are a conservative investor, mutual funds are a better bet as the risk is distributed.
4. Ownership
Equity investments have dual benefits – capital appreciation and ownership rights. If you are someone who wants ownership rights of a company, then you should go for direct investing. You will be eligible to attend shareholders meeting, get voting rights, etc. With mutual funds, you will not get these privileges as the shares are held indirectly.
5. Control
When you invest via the mutual fund route, you have no say or control in the stock selection. That is at the discretion of the fund manager. So, even if you have good reason to believe that a particular stock is going to fall, you will not be able to take any action. However, if you opt for direct stock investments, you are your own fund manager. You get complete control over the buy or sell decisions. You can exit from single stocks, which is not possible with Mutual Funds.
6. Taxation
Some Mutual Funds (ELSS) qualify for deductions under Section 80C of the Income Tax Act. However, no such benefit is available with direct stock investments.
7. Exit Load
In direct equity investments, there is no exit load. However, in case of mutual funds, if you exit the scheme before the holding/ lock-in period, you may need to incur penalty charges in the form of exit load.
8. Charges involved
In mutual fund investments, you mainly incur transaction charges (when you go through an intermediary) and fund management charges (based on expense ratio). SEBI makes the guidelines for these expenses and fund houses need to adhere to the same.
For direct equity investments, there are demat, brokerage as well as transaction charges. Mutual Funds have high trading volumes. This, in turn, brings down the per-transaction cost as compared to an individual investor with lower trade volumes.
Conclusion
There is no best investment channel that will hold good for each and every person. Both routes have their own merits & demerits. The final choice depends on you and your needs/ priorities.
Direct equity investing can be highly rewarding for individuals with in-depth knowledge of the markets and high-risk appetite. However, usually, retail investors do not possess such thorough market understanding. Some may not be able to dedicate so much time to research or monitor the market trend or movements. In such situations, it is advisable to take the mutual fund route and leave the investment decisions to professionals or fund managers. They can suggest the best mutual funds to invest in as per your goals, needs and risk profile.
Financial experts like IndiaNivesh have helped thousands of investors optimise the value of their investments. With more than 11 years of experience in the Indian markets, they are adept at understanding the specific needs of each investor. They offer a wide range of financial services including mutual funds, equities, derivatives, insurance, commodities, PMS, investment banking, corporate advisory, wealth management, etc. With an expert like IndiaNivesh, you are sure to make the best out of your hard-earned money.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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Bear Market Investment – How to Invest in a Bear Market
The stock market has been one of the favourite investment options for many investors. It passes through three major phases; bull phase, bear phase and consolidation phases. Making an investment in the bear phase is one of the trickiest tasks. This is because there is widespread pessimism in the market and the stocks keep making new lows. Therefore, to survive in a bear market, you must have good bear market investing strategies. In this article, you will learn how to make bear market investment. Let us first learnt the reason for bear markets. Reason for Bear Markets There are many triggers that take the markets into a bear phase. The global factors are the most common causes of it. And, a bad shape of the domestic economy further adds to the market woes. If we look into the history, unrest in the Middle East which affects the oil prices has always been a major reason for markets entering into the bear's grip. Moreover, instability in any part of the world also affects the stock market in some way or the other. Making bear market trading strategies in such a market can be tough because you cannot predict how worse the situation can go. Similarly, a fall in GDP of a country is another reason for bear markets. The slowdown in the economy leads to lower consumption and expenditure by the people. Here the market remains in bear mode until the economy shows signs of revival. Other factors that contribute to bear markets are double-digit inflation rates, unfavourable monetary policies, unstable political environment, etc. In order to counter these situations, you need to have solid investment strategies. So, let us learn about the strategies that can give you good returns during the bear market investment. Strategies for Bear Market Investment Purchase Index Funds When the market enters into a bear mode, purchasing index funds at lower valuations can be very fruitful. The index funds replicate the performance of the index like Nifty or Sensex. Buying index funds can be one of the good bear market investing strategies because when the market will start rising you can make huge returns. Like for example, people who bought index funds during the recession in 2007-2009 and hung in there made huge profits in 2015. So the best way to purchase them would be to keep investing a small amount at every lower level rather than purchasing them at one go. Buying Short and Long Term Puts You can make bear market trading strategies in the derivative segment to make profits in the bear market. When you feel that the market is entering into a bear phase and there are many long positions still existing, you can purchase short and long term puts on the indices. When you purchase puts and the market declines, you will make good gains with it. The options market move by a much larger percentage in comparison to the stocks, so even small put contract can give you huge returns and compensate for your losses in the long positions. These contracts need to be settled before the expiry period. Selling Naked Puts Selling naked puts is another strategy to tackle the bear markets. When you sell the puts that others want to buy for premium is called naked put selling. There are always many buyers in the bear market and you can sell them a put contract. Here, you make a profit of the entire premium amount if the put contract expires at similar or above the strike price. Therefore, the best strategy in the derivative segment during a bear market would be to keep selling short-term puts of good companies. Find Stocks That Perform Better During the bear market, the stocks trade at low prices. In fact, with the fall many good companies are available at very cheap valuations. Therefore, to take advantage of lower prices you must make bear market investing strategies by purchasing good companies for the long term. By holding stocks of good companies for the long term, you can create huge wealth for yourself. Furthermore, there are many stocks that do well in the bear market, all you need to do is research well and figure out such stocks. Purchasing stocks that are outperforming the market can help you make good profits even in the bear market. After understanding the strategies for a bear market, there are few more other things that you must do or be aware of in the bear market, they are as follows. Things to Consider in Bear Market A bear market is unavoidable and it is one of the phases of the stock market. When there are good times in the market, there would be bad too. Just remember the fact that good time will always outweigh the bad in the long run. Always balance your portfolio in the bear market. Allocation in the right assets or stocks is the key for good returns in the long term. Most successful investors make an investment in the bear phase and sell in the bull phase. Avoid margin trading during the bear market. Margin brokers allow you to trade more than you could potentially but you must not fall into the trap. The bear market is so powerful that it can wipe out your whole capital by way of margin payment. The best strategy in bear market is to purchase stocks and hold them for long period. There is always a temptation to short sell in the bear market. You need to control that urge because when you short sell a stock you hope to purchase it back at a lower price. But the market does not guarantee anything. It is very much possible that the stock price would rise after you short sell and hence, you must avoid it. The above mentioned are a few things that you must do or be aware of in the bear market. However, if you want to seek the help of an expert to make an investment in any type of market, you can contact us . We aim to protect your capital and help you earn profits with systematic investment under the guidance of our highly qualified experts.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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Stock Portfolio – How to Monitor your Stock Portfolio
It is said that well begun is half done. But what about the other half? Smart investors like you know that their job does not end with stock selection or building a good portfolio. That is just half of the job done. To ensure wealth creation in the long-run, you need to monitor the stock portfolio on a regular periodic basis. But does that mean that you need to daily check the stock prices? The answer is a loud No. Read on to know how you can monitor your stock market portfolio in a sane and effective manner.1. Keep yourself updated Remember when your parents or teachers would ask you to keep yourself updated with current affairs? Well, that will pay off even while monitoring your stock portfolio. You should read up about the company and also any new developments in the industry. This will ensure that you are abreast with any policy revisions, regulatory changes or any macro-economic factor that might impact the profitability of the sector or stock portfolio. You do not need to rely only on newspapers. You can leverage technology for this task. Google Alerts make this task easier and more real-time. Especially for small or mid-cap companies which may not enjoy wide coverage by mainstream media. You can set Google Alerts for companies in your stock portfolio and enjoy information at the click of a button. Many financial service providers also provide important news and market highlights on their portals. 2. Check out corporate announcements Listed companies need to inform the stock exchange about all important events or company decisions that may impact their stock price. This could be any new acquisition, employment or resignation of key/senior personnel, etc. You should keep an eye out for such corporate announcements. This information is easily available on the company’s as well as the stock exchange’s site. Some companies also inform the shareholders about such corporate announcements via emails. Ensure to go through the details of corporate announcements as they will help you to monitor the stock portfolio. Moreover, it can influence you to buy more or sell from your share portfolio.3. Go through the company results Indian companies release their results on a quarterly basis. It is important to study the quarterly performance reports of your share portfolio. However, the important point is not to get overly concerned if the results are poor in a few quarters. Each company goes through ups and downs. The important factor is consistency. So, do not go into panic (and exit) mode if you notice a dip. Try to analyse the reason behind the poor performance and look at the overall economic scenarios before taking any decision. Continuous poor results (especially when the economy is doing fine) is a sign that you should consider removing that investment from the stock portfolio. Annual reports also contain information about the company’s future growth plans or strategies. This can influence your decision to stick around or bid adieu to their stocks in the long-run. 4. Observe changes in the Shareholding Patterns of promoters Companies declare their shareholding pattern on a quarterly basis. These details are published on the company’s and stock exchange’s website. Shareholder pattern can be a great indicator of the overall health of the company and its future. While analysing the changes in the company’s shareholding pattern, you need to focus only on the promoter’s shares. Promoters increasing its stake in the company is a positive sign. Promoters have access to the most pertinent and intimate information about the company. Hence, they will go for a higher share in the company only when they feel that the prospects are good. On the other hand, if you notice that there is a consistent reduction in the promoter’s shareholding, take it as a red flag. Try to figure out the reason behind the same. Sometimes, it may so happen that they sell their stake to raise funds for some personal exigency. But such events are not usually recurrent in nature. Hence, do a thorough root-cause analysis. If you feel that the promoters are trying to move out of the business, it is a good enough indicator for you to follow suit. 5. Look if promoter’s shares are pledged When promoters fall short of financial resources to meet the business’s working capital requirement or need to fund another venture, they can pledge their shares for loan money. Their shares act as a security or collateral for the borrowed funds. Like the shareholding pattern, companies need to disclose the pledge details of the promoter’s shares on a quarterly basis. You should follow this information and look for any alert signs. Generally, an increase in the promoter’s share pledging is seen as a negative indicator. It indicates that the business is under financial stress. If the promoters are not able to repay the loan amount, the lender can sell the shares in the open market. This will adversely impact the market share prices and bring down the value of your stocks portfolio. 6. Credit Rating Whenever a company raises debt, they need to get themselves assessed and rated by any of the accredited credit rating agencies (CRISIL, ICRA, CARE, India Ratings, etc.) These agencies review the company’s financial health at least on an annual basis and publish the information on their website. Along with the rating, they also give a summary document which gives an overview of the strengths and weakness of the concerned company. You should review these credit rating reports. They are an easy way of tracking the financial well-being of a company. If you notice a rating downgrade, take it as a serious matter and analyse it in detail. It can significantly help you to save or grow your hard-earned money. Now you know what are the “DOs and DONTs” when it comes to monitoring your stock market portfolio. But still, if you feel that you need some support, don’t worry. Help is just around the corner. Many financial service companies collate all these data points and publish it on their website. This is highly useful for readers as all the relevant information is available in one commonplace. Also, their in-house analysts study the available information and give their expert opinion on the possible trends, etc. One such service provider is IndiaNivesh. It is a full-fledged financial solutions organization and offers a range of services in the domain of mutual funds, equities, derivatives and commodities, insurance, strategic investments, wealth management, etc. IndiaNivesh’s team has a collective experience of 300 years. Their in-depth understanding of the Indian markets, ability to customise solutions and leverage technology gives them a clear edge. So, next time you find yourself wondering – How can I monitor my stocks portfolio? Reach out to the expert team at IndiaNivesh.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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