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| Picture Shows investor's dilemma of Self-Investment or SIP? |
Actual Question:
As
an investor looking for the best returns, should one learn fundamental analysis
& invest in stocks or identify good mutual fund schemes and invest via SIP?
Answer:
Dear
Friend!
The
answer depends on the investor’s interest in learning and making investments on
his or her own and to invest time for this purpose.
Mutual
funds (MFs) through are the best for those who do not like or do not have time
or both for making their own investments. But there are a few fundamental
problems with MFs as follows:
- They bring out many schemes with exotic names under categories like income funds, growth funds and so on often confusing the investors.
- They keep on churning the portfolios to justify the managing fees charged and the money managers in turn churn the portfolios to justify their salaries causing a lot of harm to the investors.
- They charge heavy management fees ranging from 2–4% per annum - which is unjustified.
For
long term wealth creation an investor simply choose a well diversified equity
index fund of a very large fund house that is all.
Alternatively,
an investor can purchase Exchange Traded Funds (ETFs) every month that tracks
any popular index like S&P BSE Sensex or NSE’s NIFTY 50. The advantage is:
- Investor can simply buy the ETFs herself on any online trading platform implementing self disciplined SIP.
- Fund management charges of a SIP are only in the range of 0.50 to 0.60%
Only
important thing is that once invested the investments should simply be
forgotten for 20 to 30 years.
If an
investor wants to invest himself or herself one shall learn investing first and
become a value-investor.
Reading
the book “The Intelligent Investor” by Benjamin Graham is the first step
recommended.
Suggested
Further Reading:
- How Frequent Changes to Mutual Fund Portfolio Affect Investor Interest?
- Index Funds of Top 10 Mutual Funds
- What is an Exchange Traded Fund?
Thank
you,
With
Best Regards
Anand
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