Investing in stock is one of the most preferred investment options for investors, given the fact that investment in equities, when done with proper research and discipline has the power of beating the inflation.
Investment in equities can be made in a number of ways. It is not necessary to invest directly in equities. Investors can also choose alternative investment options in equities like mutual funds, index funds etc. However, a times it might get confusing for you as an investor to choose the best option for investing in equities which caters to all your needs. Most investors prefer direct investing in equities due to the flexibility it comes with, but it is still the most complicated task as long as you don’t have an investment advisor who can guide you by providing research-based recommendations.
Today, we will take a look at the common ways of investing in equities – direct investment, mutual funds and index funds and find out which one of the three should you choose.
Table of Content
Equity Stocks vs Mutual Funds vs Index Funds
Direct Investing in Stocks
This is the options which is preferred by most of the seasoned investors. For direct investing in equities you need to have a demat account and a trading account with one of the SEBI registered equity brokers. Once you have these in place, you are all set for investing in equities.
Direct investing in stocks allows you to build our own portfolio as per your needs. However, it requires you to have knowledge about technical analysis and experience in the market. People don’t taste success by direct investing because they practice direct investing without any knowledge about research and analysis. If you are a new investor but want to try direct investing for your investment needs, a SEBI registered investment advisor might help you. These advisors have a team of qualified researchers who are well-versed of researching the markets based on technical and fundamental analysis and provide research-based recommendations based on the same. You can then use these recommendations for investing in the stock markets.
Mutual Funds
Mutual fund investments have gained a lot of pace in the last few years given the fact that they ease out the process of investing up to some extent. Mutual fund invests in a number of categories including equities. For investing only in equities, you can choose an equity fund. These funds invest your capital on your behalf in equities. These funds have a fund manager who keeps a track of the market movements and alters and manages the investment portfolios accordingly.
Mutual fund investments are recommended for busy investors who are devoid of time for investing in the markets. You simply select a fund based on its performance and simply put your money. The fund manager will invest it on our behalf. Mutual funds may be based on the market capitalization of the company like small-cap funds, large-cap funds and mid-cap funds or even on sectors or themes.
Index Funds
An index fund imitates a stock market index like the Nifty50 or Sensex and is a passively managed fund, which means that the securities present in the fund are not supposed to be changed with time and will remain constant unlike active funds, where the fund is regularly altered.
An index funds has the same stocks as in the index with similar proportions. The returns of index funds are usually similar to those offered by the index and this is the reason some of the investors prefer investing in index funds.
Conclusion
Choosing an option for investing in equities relies on a number of factors depending on your profile. The most important being your risk appetite, which is a measure of your risk bearing capacity in the market. Therefore, it is very important to have your risk profile evaluated before entering the markets. With investment there is always a risk associated with it.
Happy Investing!
