Chapter 4: Process or How the heck do I Invest in Equity Successfully?
4.9 Invest in very few Equity Mutual Funds but Smartly
Why invest in Mutual and Index Funds when you have a stock portfolio? Which types of funds could add value to your portfolio? How to choose such funds? How to build a portfolio of funds? How to track the performance of funds? When investing lumpsum is there a right time to do so?
The objective of your investment in equity is to earn healthy high returns by taking manageable risks. You cannot avoid risk when investing in Equity but by having reasonable returns expectations you manage it at a level where you stay invested.
You can build your equity portfolio by investing in:
- Direct Stocks
- Actively Managed Mutual Funds
- Index funds and ETFs
But all of them invest in stocks and hence knowing how that is done is fundamental to understanding why and how to invest in equity through the other alternatives. Everything that you have seen about investing in stocks is what an Actively managed Fund’s Manager-the person incharge of building and managing the mutual fund needs to do, albeit using their own methods, process and research. Investing in Index Funds and ETFs is simply choosing the universe of stocks eg an Index, and investing in all of them in the proportion they are in the index or ETF. So, there is no Fund Manager making the decision on what to invest in.
You can read more about the different types of Mutual Funds in this blog: Types of Mutual Funds
And to know the most important terms in MF investing , refer to this blog: Do you know the ABC of Mutual Funds Investing…
Each has unique benefits and challenges which you will understand better now that you know how to invest in stocks directly. This is summarized below:
Key benefits of investing in Stocks |
|
Flexibility and Control |
|
Lesser Cost |
Lower overall cost compared to mutual funds.
|
Key Challenges |
|
|
|
Key benefits of investing in Mutual Funds |
|
Diversification |
|
Small Ticket Size |
|
Key Challenges |
|
|
...........Read More
Comments:Be the first one to comment! © All rights reserved. No part of this book may be reproduced or modified in any form, including photocopying, recording, or by any information storage and retrieval system, or in any digital or electronic format without permission in writing from the Publisher or Author. |
Comment Your Thoughts: