It sounds very safe to most of us to invest with LIC or other so called safe investment plans. Even though there may be some safe investment plans, yet we need to evaluate if we really need to choose to go for safe investment or a wise investment. Having a better understanding of basics of investing is quite essential in the beginning. Bringing your focus on Mutual Fund and Equity Investment, we have tried to clarify it better. Talking about Mutual fund, it is known as a collection of equity shares where stocks of different sectors of market come together in a single pack, it covers 50-60 stock at a time. However, Equity shares investments is based on a single sector of market, like investing in finance sector, infrastructure sector or banking sector.
CONFUSED WHERE TO INVEST? HERE IS WHAT YOU SHOULD CONSIDER
Risk? Avoid It.. or Take it!
Now when you invest in multiple sectors of the market at a time, you are in a position to avoid risk, the change in investments is very low like 1% or 2%. It can give you 2% of return in six month investment or you can suffer a loss of 1% in that period depending on market environment. This is why mutual fund investments are less volatile. Mutual fund investments are also known as divided investments. So the risk and return is divided.
However, investments in equity shares are highly volatile; investments could lead you up by 10% or can drop you down 8-12% in just a single day depending on market environment.
Whose Returns Are Better?
As explained, mutual fund investments returns are low but risk is low too. If you are in a position to bear risk and want to achieve better returns in very short period then equity share investment is the best choice for you. Equity share returns are known as fast money.
Possibility of booming single sector is positive but possibility of booming every sector is almost null. That’s why equity is fast moving and mutual funds are slow moving investments. However u need to keep a watch on your investments consistently in equity holdings.
SYSTEMATIC INVESTMENT PLAN
A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme. You are allocated certain number of units based on the ongoing market rate. Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account.
However, in equity stock market SIP does not work out. Equity is volatile in nature while mutual funds are diversified investments. In mutual funds, outperforming stock is extracted out from the lot.
Who Bears The Responsibility?
In equity share, investments responsibility is on the investor only. The decision of what to sell and what to buy is on you only and you have to decide the right time of entering in the market and the responsibility of picking the right stock on you.
Whereas in mutual fund investment, the job is done by the fund manager. He constantly adds and removes stocks from the portfolio by studying the market conditions. He holds an expertise in the field and you just have to sit after investing in mutual funds. So the responsibility of managing the funds lies on fund manager only.
After getting the ins and outs of both the investment options you get a better vision and a better understanding how ready you are to invest in what kind of investment plan. We know higher the risk, higher the returns but it’s not everyone’s cup of tea indeed. Yet, it’s always wise to keep a watch always on your investments even when it’s managed by the experts.