New and part-time investors often struggle with deciding whether to invest directly in stocks or via equity funds for long-term investments. While investing directly in equities may yield large profits, it requires risk willingness, financial acumen, and patience. Rakesh Jhunjhunwala, known as the Warren Buffett of India, is an example of someone who amassed a net worth of over Rs. 45,000 crore through direct stock transactions. However, with most people having 9-to-5 jobs or other business obligations, it becomes challenging to replicate the same level of devotion.
Equity mutual funds offer expert management and diversification of risk. Professional fund managers with decades of experience manage enormous amounts of money for clients. Additionally, investing in an equities mutual fund provides diversification, irrespective of whether you choose a large-cap, mid-cap, or small-cap fund. Fund managers also analyse firms within the fund regularly based on quarterly results, management conference calls, and sector updates, which may not be possible for individual investors.
Fund managers also ensure that investors sustain conviction in stock holdings. Individual investors tend to hold on to underperforming stocks for too long, while selling stocks after a minor gain. Conviction errors result in selling winners too soon and hanging on to losers too long. It is essential to understand that time in the market with appropriate stock selection or fund allocation is more important than market timing.
Conclusively, the best investment strategy requires researching the investing perspective, available wealth, and time and experience to understand the market. For long-term investments with limited wealth and no market understanding, investing in an equity mutual fund is ideal. However, if someone possesses expertise to research stocks, evaluate them regularly, and display patience, they can become successful investors. It is necessary to understand the pros and cons and take an informed decision based on personal circumstances.
