Why Mutual Funds are better than stocks?

When it comes to investing in stock markets, an investor is exposed to two kinds of risks - systematic risk and unsystematic risk. Systematic risk is due to macroeconomic movements and it affects the whole market, while unsystematic risks are company specific risks.

When we buy a stock of a single company we are exposed to both systematic risks (market risk) and unsystematic risks( company risk. But when we buy a diversified mutual fund or a portfolio we are exposed only to systematic risks and there is no unsystematic risks due to proper diversification by the mutual funds.

Let us take a look at some of the major advantages of mutual fund over stocks :

A mutual fund gives diversification :

If you have only 1,000 to 5,000 to invest, the money will not buy many shares of a single stock, and it will certainly not buy many different stocks. By putting your money in only two or three stocks, you are exposed to the possibility that one of them will plummet in price, wiping out much of your invested capital.

Instead, when you put your 1,000 or 5,000 in a mutual fund, your money buys into a portfolio that may comprise of 50 or 100 different stocks. If one or two stocks in the portfolio get hit hard, your losses will be much more limited because many of the other stocks will probably be going up at the same time.

A professional skilled manager chooses stocks for you :

Managers of stock mutual funds have instant access to information about every stock around the world at the push of a few computer keys. They work in companies where teams of research analysts who study corporate annual reports and these analysts visit company executives and factories to evaluate the firms’ prospects first hand. But individual investors have limited access to such information, like these fund managers.

The only disadvantage in investing in a mutual funds is that you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected.

Anyway. buying a mutual fund can substantially reduce our long-term market risk and result in a higher net return if they are used for longer term horizons and they take all the worries which are associated with managing stocks and provide proper diversification. In general that mutual funds are always better than individual stocks, since they involve lower risks, less money and but safe returns, as we have seen in HDFC Top 200 .

Comments

Team Work - Meaning and Tips for better Team Work

A single brain is not always capable of making key decisions on its own. To come up with an efficient solution, an individual requires the help and advice of others. A team is established when individuals get together on a common platform with the common goal of completing a task. To guarantee optimum compatibility, team members should ideally come from similar backgrounds and have a single aim. To provide their best, the team members must complement each other and function as a single unit in tight cooperation. "There is no I in Team Work," as the saying goes, and each member must put the needs of his team first. Personal interests must take a second seat. Any team's performance is directly proportionate to the relationship between its members and their combined efforts. What is the definition of teamwork? Teamwork is defined as the sum of each team member's efforts toward the fulfilment of the team's goal. In other words, any team's backbone is its ability t

Scientists discover a new theory / The fundamental property of light – 150 years after Maxwell

Light plays a vital role in our everyday lives and technologies based on light are all around us. So we might expect that our understanding of light is pretty settled. But scientists have just uncovered a new fundamental property of light that gives new insight into the 150-year-old classical theory of electromagnetism and which could lead to applications manipulating light at the nanoscale. It is unusual for a pure-theory physics paper to make it into the journal Science. So when one does, it’s worth a closer look. In the new study, researchers bring together one of physics' most venerable set of equations – those of James Clerk’s Maxwell’s famous theory of light – with one of the hot topics in modern solid-state physics: the quantum spin Hall effect and topological insulators . To understand what the fuss is about, let’s first consider the behaviour of electrons in the quantum spin Hall effect. Electrons possess an intrinsic spin as if they were tiny spinning-tops,

19 Types Of Content Writing Services For Your Business

It’s hard to know which type of content writing service is the best for your business. There are so many different types of content writing services out there that it’s easy to get confused. You end up wondering if you’re choosing the right one for you. In this post, we’ll get rid of this confusion, once and for all. I’m going to list out the different kinds of writing services you could use. By the end of this article, you’ll know whether you need a copywriter, a content writer, or a social media marketer and how they can help you achieve your business goals. This post is also useful for writers who want to hone their writing skills in a specific area. Let’s dive in and learn what types of content writing services exist and when you should use them. (Bonus – if you want to hire the top 1% of writers, go to the bottom to learn how). Types of Content Writing Services As we go through the list of content writing services, you will find that many of them overlap. That’s perfectly

The LimitlessX - Get Tech Science News around the Globe

Search This Blog