You should learn, how you can become a good investor at this time. But at this time there will be many questions in a lot of people’s minds. That is why I have brought this blog for you today. In which we are going to talk about which asset is good for you to invest in which means should you invest in stocks? Or should you invest in mutual funds?
A lot of people who have cash reserves, They might think that this is a good time to invest
But this question comes in everyone’s minds
Mutual funds or stocks?
Before coming onto the topic I will talk a little about mutual funds and stocks
What are stocks?
If you like the business of any company, You think that you should buy a share in that. You should have some ownership in that, then you buy that share.But here it is very important for you to know
What is the business of a company?
In the same way if I talk about mutual funds then what are mutual funds?
Mutual funds are a kind of Asset Management company where you put in your money Where all your money is pooled in one place And after that one fund manager invests your money in one asset or another
What is the difference in mutual fund and stocks?
So if I talk about stocks, the company that you have to buy there. You have to buy it yourself
Which means that it is your decision and your judgement
After that you buy a share of a company But when the topic of mutual funds comes up, then you see what a mutual fund is, what its objective and goal is
Now I will take an example, a mutual fund can be a large cap fund, You know that a mutual fund is a large cap mutual fund. They invest in large cap companies. Now large cap companies like Reliance, Infosys, any company like this Now you know that there is a large cap mutual fund
Here, you give your money to that fund manager, After that he invests in anywhere. But yes, there are some restrictions on that How much does a large cap investor, have to ivnest in large cap But there you don’t have to choose one company at a time. Your fund manager invests your money there Which they think will give you good returns. There you can put your money.
You stop and wait for sometime to see the kind of returns it gives. After that if the fund manager gives you good returns, then it means that you chose a good fund
Now I will talk about how you can invest in that stock?
To invest in stocks, if you have chosen that you want to put money in stocks. You have to open your account at a broker. After that, if I talk about some charges, the broker take some money to maintain your account after that if you make a transaction you get charged for those transactions.But the biggest, your risk is associated With that particular company, The company that you chose, to buy its ownership and its shares Which you think is being traded at a discount right now. In the same way if I talk about mutual fund related costing
There as well you have to create an account somewhere.
Here if I talk about costing the cost that you get, that becomes your expense ratio, that the place the mutual fund is investing your money
The charges for research
Their operational charges
They get cut out in the form of expense ratio
But in the stock market you have to pay a transactional fee, now after this, I will now come to the main question Which asset is good for you as an investor
Should you invest in stocks Or should you invest in mutual funds?
Now consider that I have two types of investors,
An investor A and an investor B, First I will talk about investor A
Investor A does not know a lot about the stock market, he thinks that if he invests in the stock market.His chances to lose money becomes very high. Apart from this, he does not want to research about companies.He doesn’t understand how companies conducts its business.But he has an urge to invest in the stock market. He thinks that the market has come down a lot so it is a good time to invest.So for investor A, I would say that mutual funds are very good, because the person who doesn’t want to invest a lot. Now he cannot actively research about which company is good So he should put money in mutual funds
But for him the important steps that he should pay attention to are, he has to see how much risk he wants to take. If I talk about risk, if he wants to take very minimal risk, debt mutual funds, if he wants to take slightly higher risk, large cap mutual funds.
But if I talk about large cap mutual funds, equity category, he has to invest for the longer horizon. Yes, it is possible that if the market recovers in the coming time.Then it can be a very good opportunity for him to invest.
But to predict the time when the market will reach bottom, that is impossible, So for them, it is better to start an SIP,because if they start an SIP. So every month he will put in some money, when the market goes down, he will get more quantity, When the market goes up, he will get a lower quantity.
But now I will talk about investor B, Who has a lot of interest in the share market, Who reads news related to the share market daily Who knows a lot about companies. He has researched a lot in one sector so for that investor who has a lot of expertise Who has experience, Who has a lot of interest And he is ready to take risk. For them, the share market becomes a very good option
They should do a little research and should choose a good company Choose a good business
And after that choose a good management which they think will make a small company a big company Or it will show good growth in the coming days. Then they should go and invest in that company.
If the market is down there are uncertainties at the macro level. Then it is possible that they will get good companies at a discount but which are the good companies
Investor B has to understand that Which company’s business does it understand and there are uncertainties at the macrolevel, all the companies will be down But the company’s business that it understands the risk he understands and the company he feels will have good growth. He should invest in that company, So if I answer this question again, Stocks or mutual funds, both assets are very good and sometimes, stocks assets invests in mutual funds
But here, if you are investor A Who doesn’t want to take risk, you don’t want to do active research then mutual funds are best for you nd it can be a good time to invest, I will tell you again
But if you are investor B Who thinks that he should research Who has a lot of interest and wants to learn a lot then he should invest in stocks
So look at your risk here, do your research and then decide where you want to invest
Look at your risk and then choose your asset but more important than that is for you to do your research and set your goal after that but whenever you invest, do it for a long term
It is possible that this investment opportunity might not come again in your lifetime when the market is at this kind of bottom. But how long this bottom lasts. The idea for that can’t be given to you by me or anyone else. But whenever you find a good opportunity. Then you should invest at that time. invest in small amounts, don’t stop your SIP
Do not panic!
And don’t put in all your money during volatility. I will give you this suggestion and leave it to you. If you think that you want to research and actively invest, then stock market
But in the short term duration it is possible that the market will be extremely volatile like one day, it can be up 4% and another it can be down by 4-5%, So here if you want to invest, or if you have invested Choose a good business for the longer horizon and after investing look at the company quarterly results If the company is on track then you will get good returns
In the same case, if you are investor A it is a good opportunity for you The NAVs of mutual funds are low. It is possible that you will get a lot of benefits by investing but for how long it will stay down and when it can go back up, no one can give the idea for that we can only hope that the economic activity can come back on track again
All countries will come back on track and Coronavirus will end After that the share market will go back up again and good days will be back for investors
But when it will come, we have to wait for that but your investment has to made by looking at the business by looking at your risk, by looking at your goal after that you can invest.