Let’s find the difference between Mutual Funds and Stocks for long-term investment. Why Mutual Funds are Better than Stocks?
The stocks have always been an attractive investment option for most investors. However, it comes with lots of risk for those who just entered into the capital market. On the other hand, Mutual Funds are a considerably safer and convenient investment option. This post will help you to understand why mutual funds are better than stocks for beginners.
The stock market sounds to be very attractive to gain profits, however, it comes with a huge risk. The reward ratio generally depends upon your knowledge and research. It is hard for beginner investors to choose a particular stock from a list of thousands. Almost 95% of the beginner traders lose their money or fall into the trap of bullish wave.
But in case of mutual funds, you don’t need to worry about a particular stock. Money managers manage your portfolio on your behalf. Invest and FORGET! If you are still in dilemma to choose between Mutual Funds or Stocks, here are few points you should consider before you invest:
It is true that investment in stocks has a high potential to make good profits, but it comes with a high-risk. You can suffer from significant looses even in a short period of time in stocks if you’re new in the game. Whereas Mutual funds are considerably safer than that of stocks. The companies that offer Mutual Fund schemes have professional mutual funds managers behind. They monitor the fund from time to time and do intensive research to make it profitable or less risky than stocks. But, bear in mind, you still need to do your own research before investing your money.
High Investment Skills Required
For beginners investors selecting good stocks needs high knowledge and experience about the market overall. In general, it is risky to invest in a stock without basic or no knowledge about the stock market. Even experienced traders fail to book profits in stocks, sometimes. But compared to stocks, mutual funds don’t require much knowledge or deep research. Depending on your target, you can choose good mutual funds. And keep invested your money in the long-term, which can give you profits.
Amount of Investment
The investment amount is generally the major concern for beginners. Stocks need a lump sum amount to generate good profits. But, in case of mutual funds, you can start with a little amount or invest through a Systematic Investment Plan (SIP). SIPs are generally safer than investing a lump sum amount as you get an option to buy in dips.
Tracking Your Investment
Timely tracking your investment is an important factor to make profits out of the stock market. When you invest in stocks, you need to keep a market watch. This requires time and effort. Whilst in case of mutual funds you don’t need to keep an eye on your fund every time. The investment company will keep tracking of the fund and make changes accordingly. So, you don’t need to worry as much as stocks.
Zero to Less Tax on Mutual Funds
Consistently buying and selling is part of stocks. If stocks are sold early, you’ll need to pay short-term capital gain tax. For mutual funds, there is no to less capital gain tax. If you consider investing in a mutual fund for the long-term, you don’t need to pay any tax. This will be a beneficial factor for the investor. Thus, you must consider holding a mutual fund at least for a year to avoid tax.
Low Cost of Investment
Mutual fund companies negotiate with intermediaries and have low fees. But, in the case of stocks, you’ll need to pay brokerage charges to the company. Additionally, you’ll need to pay Demat and other maintenance charges to your broker. However, in the case of mutual funds, you pay only a fraction of brokerage charges.
Mutual Funds Gives Instant Diversification
A well diversified portfolio should generally have 35-40 stocks. But, such a portfolio can be hard to create as it requires massive investment. But, in case of mutual funds, which comes in units that invest across several stocks, gives you instant diversification benefits without investing huge money.
Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.