Which is a better option - investing in shares or mutual fund?

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Short Answer: If you are someone with no knowledge about share market, Mutual fund is the best option for you. If you are someone with enough knowledge about share market and have time to spend every day to do your own analysis, you can go for investing in shares by yourselves. 

Long Answer: As I said in the short answer above, it is dependent on one's perspective and capabilities. If someone can spend enough time every day to analyze and make investments, there is a good scope for doing all the investment by themselves. But if you are the person who can invest money but not time, then the best option to go is Mutual fund. Now let me explain why it is like that. 

Share investment needs time

Share market is a fluctuating market. There are various factors contributing to the raise and fall. Sometimes it can even be specific to a stock and sometimes it can be a global fall. There are different reasons why they raise or fall. Just a company's performance or a good/bad news about a company cannot make their stock raise or fall. There are so many other parameters to be considered. A stock might suddenly grow one day without any reason and people might think it can be the right time to invest but it may not end up in profit. So share investment is not an easy thing to do. 

People will have to spend lots of time analysing more about the trend of the market and do their investments. Even if there is a loss, people should be willing to take it as how they take profit. There are different types of analysis that will be required for an investment on a stock. Technical analysis and pattern analysis can work on few stocks and for some people, there are also sentiments. Some stocks will be close to their heart and can give good returns. Some experts also say that it can even be based on luck. If anyone is willing to spend the time required to do all the analysis and be up to date with the current trends, then they are good to invest in shares directly. 

Mutual fund investment quite easy compared to share investment

Even for mutual fund investment you will have the necessity to spend enough time to find the right mutual fund. We cannot easily say that all the mutual funds can give you great returns. There are three types of mutual funds:

• Low risk
• Medium risk
• High risk

Based on a person's financial status people can opt for any type of mutual fund. If you are someone with a good source of income and backup, then you can go for high risk and check your luck. If you are someone with lots of commitments in life and if you have to keep the money really safe with decent returns, then you have to go for low risk. If you are in a category between the two, you can choose medium risk and try your luck. 

Of course, mutual funds are also dependent on how the market is performing. The overall performance of the market can have a great impact unlike individual stocks creating a big impact. In mutual funds, the investment is not directly on a particular stock. The money that you invest is on a fund and that fund will be used by the financial manager of your service provider to invest in different stocks. Your investment will have a value and it will rise or fall based on the stock prices that your mutual fund service provider invests on. 

How mutual fund investment is advantageous to us?

This is of advantage where you will just have to choose the right mutual fund and invest on them. All other transaction difficulties and profit loss related things, the financial manager will take care. That is where it becomes quite easy for a normal investor to invest in mutual funds compared to that of direct stock market investment. There are few disclaimers that mutual fund companies provide to use. 

"Mutual fund investments are subjected to market risks. Please read the offer document carefully before investing".

It becomes more advantageous because when a particular stock falls it will not affect a mutual fund unless and until it is one of the major holdings in the mutual fund. Even then if another stock is performing good, the loss that was met can be easily gained back. 

On a final note, one of my friends gave me a great piece of advice that I would like to share with everyone. "Invest only the money that you are ready to burn". Do not have so many dependencies and plans on the amount of money you invested. Your normal life should not be disturbed even your investment is completely gone. 

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