Direct Equity vs Equity Mutual funds:
Many people are confused about whether can I invest in direct equity or Equity mutual funds. Though both investments are done inequities the risk on both will differ. The comparison between both will give you a clear picture.
Direct Equity:
In Direct equity investment, an investor invests in a company which he believes the company will do good in the future based on his analysis. It is high risk but high-reward investment option.
In direct equity, Investors can concentrate on 3 to 4 well-known stocks and follow the stocks regularly, and making decisions. you need to watch stock price movements at least once a day and keep updating about the news related to the stock.
If you have passionate about investing in stocks and you have time to monitor the stocks regularly, direct equity investment is the best option for you. You can also get dividends from these stocks and also they are a tax-efficient source of income for investors.
If you buy a stock you receive shares from the company means, you are part of the company. If the company business is doing well, the share price will increase and you can make a profit.
Equity Mutual funds.
In a mutual fund, they collect money from many investors and invest in stocks, bonds, and other financial instruments. Mutual funds come with diversifying opportunities.
Your funds are handled by experienced mutual fund managers and they aim to beat the market and provide more returns to investors. you can start investing in mutual funds with even Rs.1000.
In any mutual fund, whether it is Equity, debt, or both, it can be an open-ended mutual fund scheme or a close-ended mutual fund scheme. In an open-ended mutual fund, an investor can enter or invest and exit at any time, there is no maturity period. In a close-ended mutual fund, an investor can invest and there is a maturity date. At the end of the maturity period, investor can redeem their money. For new investors, the mutual fund is a better investment option than other investments.
Mutual fund NAV.
Mutual fund investment is done through by units.
For example:
If you invest in scheme A, Investment is 100000
NAV of a scheme is Rs.10
Units allocated is 100000/10= 10000 units
Return after one month is 10%. Now revised NAV is Rs.11.
If you want to buy one unit mutual fund you need to pay the NAV of the mutual fund. That's how a mutual fund works. NAV is calculated by the total number of all cash and securities in the portfolio minus liabilities divided by a total number of outstanding shares.
Summary.
If you ask experts they advise you to invest in mutual funds because mutual funds are professionally managed by fund managers. If you have passion, time, and a good understanding of stocks you can choose direct equity investing. From January 2020 to October 2020 the total number of Demat accounts increased by 39.6 million to 47.6 million, that is 1 million on average per month. At the same time, mutual fund portfolios also increased by 8.73 crores to 9.37 crores. Investors are showing interest in both equity funds and mutual funds. So which one is best? you can invest in both equity and mutual funds, however, both have risks subject to volatility. Consult with your financial advisor before investing.
