Friday, January 1, 2010

Mutual Funds or Stocks?

Many Investors have doubts about whether to invest in stocks directly or in Mutual funds. If we can analyze the performance of the Mutual during the Bull Markets and Bear Markets, it would give a clear answer about it.

The present bull market started around 2003 and ended in 2008. The Mutual funds performed well during that period but still their performance lagged behind the performance of Stock Indices. In India, Bombay Stock Exchange Index Sensex appreciated by seven times. But no fund appreciated by seven times in this time. If we take into consideration some well performed sectors like, Reality, Power and Infra, the performance of the funds is far more less, which clearly indicates, Mutual funds have not performed extraordinarily. They have performed as an ordinary investors do.


Had an Investor invested directly in stocks, he would have multiplied his money manifold. So, Mutual fund Managers are not smarter than us. I prefer investing in Stocks directly instead of Mutual funds.


But investing directly in stocks do have some risks. Had anyone invested in Hindustan Unilever in Bse or General Motors in USA, he would have not seen his investment appreciate far the last five years. So, picking the right sector and right stock is more important in investing. Any secular bull market will sustain for five years to ten years. Always hold your investments till the bull market is over. Don’t shuffle your stocks in your portfolio frequently.

If one can follow the rules propounded here, then one can prefer stocks over Mutual funds.

Which one do you prefer?

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