There is no doubt that equities as an asset class do well as compared to peers. This is especially true in an inflationary and/or high-interest environment. Owing to this, they have been gaining attention since the turn of the century from people across the spectrum.
There are two main vehicles for investing in equities:
Both have gone through multiple rounds of iterative evolution. At present, investing in both vehicles is as easy as ordering a pizza. Despite this, both are meant for people of different genres.
Let me elaborate.
Direct stock investment is for individuals who have spent time in the market and understood its
- Cyclical nature
- Emotional tantrums
- Risk-Reward Nature
In comparison, Mutual Funds are for individuals who believe in diversification and are able to have a long horizon (> 5years) to generate good returns.
The advantages of a Mutual Fund are:
- Professional Management through a Fund Manager
- For a Nominal Fee, an individual is able to diversify into stocks(large, mid, small), debt, commodities, and currency
- As the Fund size increases, the expense ratio decreases
- Mutual Funds have an option to invest Directly(without an intermediary) or Regular(through an intermediary)
- The churning of the portfolio held within the Mutual Fund is done by the fund manager on regular basis to generate exceptional returns (XIRR ~ 10–15% for Equity Focused Mutual Fund)
Consider your time horizon, risk appetite, and ability to do research prior to investing in equities using stocks or mutual funds.
This is especially true in 2022 as we are in a period of high inflation, possibly high-interest rate, uncertainty over Covid-19 variant impact, and global recovery.
Try to design a portfolio along the following lines:
- Bluechip Stocks: 30%
- Flexi & Large Cap Based Mutual Funds: 40%
- ETF: 10%
- Debt: 10%
- Liquid Money(Bank Account): 10%
Hope this helps