Do you buy shares directly from the stock market or do you invest in equity mutual funds? The former is engaging and fulfilling and the latter, less risky for you. In this article, we discuss when it is meaningful for you to invest in mutual funds and when you should directly buy shares.
Goal versus Returns
The discussion relating to direct equity investment and mutual funds rests on your investment objective. Are you investing to earn higher returns? Or are you investing to achieve life goals? Suppose you want to send your child to the US seven years hence for her college education. Your objective would be to accumulate enough wealth to pay for her education. True, having more wealth in your daughter’s education investment account will not hurt. But having more wealth also means taking higher risk. Which would you prefer: Taking minimal risk to achieve your goal or taking higher risk to earn higher returns and, in the process, increasing the risk possibility of failing to achieve your goal?
Needless to say, you would prefer to take minimal risk because accumulating wealth for your daughter’s education is important. Now, direct equity investment carries high risk. Why? To be successful at direct investment, you should be able to pick the right stocks and then sell them at the right time. Are you confident of doing both? Importantly, do you have the time to continually engage in this process?
