PNS Investment Fin Services – Knowledge Series
Stock Investing vs. Mutual Fund Investing
Key Differences
When investing in stocks, you’re responsible for:
– Deciding entry and exit points
– Setting stop-loss levels
– Determining position sizing using metrics like risk-reward ratios
– Conducting technical analysis for entry and exit signals
During market downturns, you may need to sell stocks at a small stop loss to book profits or avoid significant losses, as individual stocks can correct by 50-70%. After the correction, you’ll need to identify which stocks have momentum and adjust your portfolio accordingly.
Mutual Fund Investing: A Hands-Off Approach
In contrast, mutual fund investing offers a more streamlined approach:
– No need to decide entry and exit points
– No stop-loss levels to set
– No position sizing calculations required
– No technical analysis needed
Mutual funds are a diversified portfolio of stocks (typically 50-100) with varying weightages. Fund managers actively adjust the portfolio by:
– Rebalancing weightages
– Churning stocks
– Performing sector rotation
– Adjusting to macroeconomic and fundamental changes
As a mutual fund investor, you can:
– Use market dips to your advantage through rupee cost averaging
– Invest or top-up your existing investments during market downturns
– Let the fund manager handle the stock market play
Tax Benefits of Mutual Funds
Another significant advantage of mutual funds is that they don’t incur capital gains tax when buying and selling securities within the fund. In contrast, direct stock investments attract Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes.
Key Takeaway
Mutual fund investing offers a simplified approach to investing in the stock market, allowing you to benefit from professional management and diversification while minimizing your involvement in day-to-day investment decisions. Ensure that your mutual funds are aligned with your long-term wealth-building goals.
No one can Time the Market or predict it’s movement in the short run. Staying invested is called Time in the Market, and more the Time in the Market will make the Compounding work to create a meaningful corpus
Invest into Peace of Mind
Regards
Suresh PN
