With the development of technology and digital devices, trading and buying stocks becomes easier than ever. However, there are so many different financial instruments out there that it is difficult even for the experts to choose their strategy investing tactics. Stocks, bonds, securities and much more. The endless flow of new terms and names.
Two of the most important terms in investing are mutual funds and share market. As a novice trader, you have probably seen them a few times already. A share market is a market where the shares are traded, they are bought and sold. When a company needs money, there are several ways to obtain it. One is borrowing it from a bank. However, this can be risky because they need to pay back that money with interest. Another option is for the company to issue shares.
That way, anyone who buys some shares gets some stake in the company, a part of it. Therefore, they invest money in partial ownership in the business. That kind of ownership can come with some power to decide the course of the company, or just having shares that can rise or fall in value. In the share market India especially, the trader is alone, that has some benefits, like his freedom to buy or sell any shares that he likes, as much as his financial situations allow him. However, trading shares is a hard business, one that requires experience, dedication and a lot of time investment. It requires constant monitoring of the share prices, watching how companies expand and contract, doing mathematical analyses and much other complicated stuff.
It is hard labor. This is where the best mutual fund comes in. They are funds that are managed by experts who are taking the money from thousands of people and then invest it. They invest in other things too, like stocks and debts, not just shares. Of course, this is not free and the fund managers take a percent of the profit for themselves.
There are many differences between mutual funds and share markets. The first one is the degree of risk. Investing in shares yourself can be risky. One, you probably are not an expert and two, you are only one person that has a limited amount of money and you can only buy shares from a limited number of companies. The mutual funds, on the other hand, are run by people whose everyday activities center around tracking the share markets. In addition, the funds diversify their investments, meaning that your money is invested in a big number of shares from various companies after it is pooled together with the money from all the other fund clients.
However, when it comes to the returns, the story is different. While they are stable, the mutual funds are less willing to risk and they are less likely to gain big. Therefore, they have financial returns in the range of 14%-15% and while it is nice, it will not make you a millionaire. If you want to become wealthy, you will have to get your hands dirty and invest directly, but watch out; you can lose all your money and end up homeless before you even know what happened.
When you participate in the share market directly, your only costs are the ones that you pay to your brokerage firm and they range from 0.5% to 1%. The mutual funds’ costs can be from 2% to 3%. Moreover, in the end, it is much easier to invest in mutual funds. Nevertheless, finding the good ones is a much trickier issue.
Try both strategies. You will get a feel for the market. I only hope that you will be able to find the best mutual fund and beat the share market in India. This market is in an expansion and with more than a billion people in the country, we can only speculate about the almost endless opportunities.