Investing in mutual funds as well as stocks is generally considered to be a sound long-term plan
but it is important to understand the difference between the two to gauge which kind of investment best suits your risk profile.
MFs are best suited for individuals who want to manage equity risk better by diversifying
Investors in equity or individual stocks tend to be more active with an appetite for risk. In this sense, MFs are seen as a ‘safer’ bet in comparison to equity stocks.
The value of these investments could skyrocket or plummet within an extremely short span of time. MFs are more diverse, and therefore, more stable.
Direct equity is very volatile by nature.
Equity requires the individual to constantly monitor his or her investments due to the ever-changing nature of individual stocks.
Persons who invest in MFs use the services of a fund manager, who takes care of the portfolio, making it a convenient form of investment.
MF trading comes at a much lower cost since these expenses are spread over all portfolios within the fund.
Trading in equity stocks usually comes at a significant cost. Sometimes, any profits made from the sale of a stock can be wiped out due to the high trading cost involved.
You need to understand the state of your finances - how much money you can set aside for investments, along with your risk appetite, and choose accordingly.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.