When we invest in shares, we will get ownership in that company to the extent of shares that we hold. Investors are eligible to participate in board meetings and enjoy the benefits of bonus issues and dividends etc. But selecting a good company and identifying the true price of that company is challenging and crucial to making money in the stock market.
Financial markets are complex to understand and require market knowledge, proper research & analysis, experience and so many other factors that will impact the markets. Apart from that, we need to monitor our portfolio regularly. For a normal individual Investor, It is a time-consuming process.
Shares are more volatile in the short run and investor should have great patience and fortitude when markets are in a bearish phase. Equities are not suitable for risk-averse investors who do not like market fluctuations. If you have good knowledge of markets, know how to read financial of the company, understand the business and markets then you can invest in shares.
Equity is one of the best asset classes which have generated superior returns in the long run than any other asset classes.
; Mutual funds invest not only in shares but also invest in fixed income securities, commodities and derivative instruments etc.
There are different types of mutual funds such as equity-oriented funds, Debt oriented funds, Hybrid funds, etc. Investing in equity-oriented funds is considered as investing in shares in an indirect way. Because they collect money from various investors then they invest that money in shares and equity-oriented instruments and whatever returns they generate on those instruments will be passed onto investors.
These are less volatile in nature compare to directly investing in shares because investor’s money is well diversified across different well-researched companies. This diversification reduces the risk of investor and optimizes the returns. Here, the investor need not worry about understanding companies and reading financial statements etc. The fund manager does everything for you. But the only disadvantage that exists in mutual funds is investor does not have the flexibility to invest in stocks that the wanted to invest in.
Mutual funds provide an opportunity to invest in equities for general people who are risk-averse & willing to invest systematically for their future goals.
Direct investment in shares can give you tax benefits only under Section 80CCG, while tax benefits on mutual funds can be claimed under Section 80CCG as well as 80C if it is an Equity-Linked Savings Scheme (ELSS).
Whether you must invest in mutual funds or shares depends on your knowledge and experience of the market and the amount of time you have. Mutual funds are a great investing instrument if you are a dilettante and aim for a steady growth of wealth. But if you are a stock market virtuoso and have enough time in hand, direct investment in shares is a better choice.
GST rate of 18% applicable for all financial services effective July 1, 2017.