In this article, we will discuss an in detail comparison of StockBasket vs Mutual Fund and would try to find out which is the better investment among them.
Economic theory says human beings are rational agents and their investment ideas are goal-oriented, evaluative, consistent and free from emotions. However, in reality, the investment behaviour of investors can often be irrational and mostly emotion-based.
Retail investors often find it difficult to make money in direct equities. Their investment behaviour holds the clues, the two biggest mistakes that retail investors make is:
- They buy wrong stocks
- They don’t hold good stocks for the long-term.
Today we will compare StockBasket with Mutual funds, but before this, we will first identify the difference between investing in equity, Mutual fund and StockBasket, so basically Equity is an instrument for investments and Mutual Fund and StockBasket are mediums to invest.
So Retail investors have 3 options to invest in Equities:
- Direct Equities
- Mutual Funds
So let’s discuss in detail about them
Direct Equities: A retail investor can buy the stocks of any listed company through his Demat and Trading account (Samco offers one), and he can directly buy and sell the stocks in direct equities.
The advantage of direct investing is that the investors have full control over his investment and he can anytime buy or sell the stocks. It requires good fundamental and technical knowledge to identify good stocks that can give superior returns, many investors make select bad stocks and thereby end up with a loss.
Mutual Funds: Mutual funds are a collection of stocks and bonds that are managed by fund managers in an Asset Management Company (AMC). If it is an equity mutual fund, it will contain stocks, while debt mutual funds will contain government bonds and securities. Investors don’t have any control over their investment. The investment is managed by a team of professional, which then invest your money in various funds. The returns generated by Mutual Funds are about 12-15%. Mutual funds are over diversified, which reduces the risk of your investment but it also reduces the return on investment.
StockBaskets: StockBasket is an expert-curated ready-made basket of stocks. Each basket may have 5 to 15 stocks. For investing in StockBasket a user must have a Samco trading and Demat account. The basket in StockBasket can be categorised on the basis of:
- Financial goals
- Risk appetite
- Long term theme
- Time Horizon
For investing in StockBasket a user must have a Samco trading and Demat account.
How investing is StockBasket is better than direct equity?
When we compare StockBasket with direct equities, the main difference is that when we invest via direct equity, a single stock is bought at a single point of time and there is no weighting system or mechanism that is followed while buying single stocks. StockBasket actually correctly identifies the weights in which the investor should invest in these individual stocks so that the risk is reasonably diversified. StockBasket gives returns up to 15-17% p.a, which is more than any other investment option in India.
How StockBasket is better than Mutual Funds?
Usually, equity mutual fund schemes invest in over 50 stocks, making the investments overly diversified and thus hamper the potential returns while StockBaskets are consciously designed to have a range of 5 to 15 stocks giving the optimum level of diversification. Mutual Funds as a statutory requirement cannot keep cash over a certain part of their investment forcing them to invest even when the time or opportunities are not right, whereas in StockBasket an investor needs to just invest the amount as per the basket and hold them for 5 years for the magic of compound to come into play and to earn superior returns on your investment. Also, a benefit that you get only with StockBasket is that your dividends are directly transferred into your bank account, which nowadays is considered as a great passive income option.
Conclusion – StockBasket vs Mutual Fund: After comparing StockBasket with direct equity investing and Mutual funds we can say that StockBasket is “The Better Investment” and if you invest in these top quality companies of StockBasket you can definitely grow your wealth in the long term.