Mutual Funds Or Stocks??

Is investing money in mutual funds good or should I go for stocks? A lot of investors have become wise enough to understand that it makes sense to invest when the market is down. Most of the investors are willing to take advantage of the current economic downfall. But the biggest question is: Should we invest in mutual funds or stocks? I had a similar doubt before I did my research last year. Please read this answer till the end and you will get your answer:

What if I tell you that there are high chances that around half of the companies in Nifty 50 would vanish in the next 10 years? Some of them would even go bankrupt. Shocked? Not possible? What if I tell you that this is what has happened in the last 10 years. 22 out of 50 companies in Nifty 50 in 2009 do not even exist in Nifty 50 in 2019. Yes, you heard it right. 22 companies!! What are these companies? In 2009, did you imagine that Reliance Communication would go bankrupt? Did you imagine that Suzlon would be such a big wealth destructor? Who imagined Idea Cellular from one of the biggest corporate groups (Aditya Birla Group) in India to be on the verge of bankruptcy? Did you know that PNB would face such a level of corruption in the next decade with the Nirav Modi incident? By the way, I am only talking about the top 50 companies in India. Do you know what happened to the next 50 companies? 36 companies were wiped out of the nifty next 50 lists. Only 14 companies survived in top 100. What is my point? Stock Market is very brutal. The stocks which look favorite today might be down by more than 90% in a few years. The recent case is of Jet Airways, Idea, Yesbank, HDFL. Stock market is very dynamic. Some stocks would rise while some would fall. If you think that you can buy a stock and blindly hold it for 10 years, there are high chances that you might end up in loss. As a retail investor, it is next to impossible to track each stock. While everyone would talk about the multi-baggers, nobody really talks about multi-losers. There are high chances that you would have more losers than winners. Having said this, I still think that the stock market is the most rewarding investment option in the long term. But, how to invest? That’s where Mutual Fund comes into the picture! Mutual funds are professionally managed by a team of experts. They know the in and out of the market. They also have high bargain power. What is bargain power? Let me explain. Suppose you want to buy fruits. If you go to a local retail vendor, you have to pay money. But if you buy the same fruit from a wholesale vendor, there are high chances that you get the fruit at a lower price. Why? Because wholesaler purchases in bulk. Likewise, mutual fund managers purchase in bulk. If you let them buy from your behalf, there are high chances that they purchase the stock at a lower price then what you might have ended up paying. A lot of stocks rise just because of bulk buying and then retail investors enter at higher levels. These experts also know the right levels to enter and the right levels to exit. Mutual fund team actively tracks each stock every single day. They track thousand’s of parameters which are practically impossible for a retail investor to track. There are various categories in a mutual fund that caters to different risk profiles. You have an option to chose any category which suits your risk profile. Mutual funds diversify the investment by buying many stocks in the portfolio. This reduces risk. Even if a company goes bankrupt, some other company would give great return and overall returns would be balanced. You can opt for active as well as passive mutual funds. Passive mutual funds are also known as Index or ETF funds which replicate the index like Sensex or Nifty. Since index is dynamic, the index funds also dynamically update the portfolio. While some might still argue that stocks are better, I would say that it is not only about getting multi-baggers in the portfolio. It is also about downside protection to avoid any company which might go bankrupt in the future. Hence, it is about managing the risk vs return which is perfectly done by mutual funds.