Mutual Fund Vs. Direct Equity Investment

Mutual Fund and Direct Equity Investment, which one is better?

Mutual Fund: -

Mutual Fund Benefits

Mutual Fund is an investment tool and it is very important and demanding tool among common investor. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The first introduction of a mutual fund in India occurred in 1963, when the Government of India launched Unit Trust of India (UTI). In Mutual Fund investors may be retail or institutional in nature.

Mutual fund is more common and easy investment tool for common/retail investors. Any one wants to start investing OR thinking for a large corpus in future for their goals and dreams. Mutual fund is one of the best ways to create it. Common/retail investors start investing in mutual fund through SIP (Systematic Investment Plan). SIP is the short form of Systematic Investment Plan through this a common investor start their investment in open equity market and all these investing managed by a professional manager. We can start investing with minimum amount INR 500/ monthly and up to our pocket size. Let us take an example:-

Here with above result, it is very clear that if we will start SIP with INR 2000/ on monthly basis with discipline, it will become 3.9 Lakhs after TEN YEARS and here we are taking annual inflation rate is 6.0% also. So SIP is very good for new retail investor. We will invest our money with one time in mutual fund also.

We will get SIP calculator from many financial sites, here I am giving one URL from one of third party: - (Source from another site)

https://sipcalculator.in/

The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional fund manager. Primary structures of mutual funds include open-end funds, unit investment trusts, and closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange. Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds, hybrid funds or other. An equity mutual fund comprises a basket of stocks actively managed by a professional fund manager. However, it is very important for us to understand the fact that investment in a single stock is not equivalent to that of investing in a mutual fund. In fact, you can say investing in a basket of stocks can be comparable to investing in mutual funds. 

Direct Equity Investment: -

Before we start comparing investing in direct equity stocks and mutual funds, one important thing to remember is that both investment avenues have a risk element. However, mutual funds are considered less risky compared with investment in stocks. Mutual funds provide you with diversification across stocks and sectors. 

Stocks Give Us Many Benefits

Direct equity investment is well-suited to investors who have skills and knowledge to pick stocks. For direct equity investment we need a DEMAT ACCOUNT from any of the brokerage houses. Moreover, these investors will often tend to have access to stock market research and data, which will help in taking stock calls. More importantly, investors in direct equity must ensure that they have the time to manage their equity investments on a daily basis.

We need time as well as skills and knowledge to pick stocks for investment and create a long term corpus for fulfills our dreams and goals. Benefits of equity share investment are dividend entitlement, capital gains, limited liability, control, claim over income and assets, right shares, bonus shares, liquidity etc. Disadvantages are dividend uncertainty, high risk, and fluctuation in market price, limited control, and residual claim.