What might be the reason behind this? Well, that’s because the stock market is a lot of money. Easy to get in but hard to get out!
People who have experienced losses in the past often end up blindly investing in a mutual fund in the hope that the fund manager will do justice to their money.
Yes, you get benefits like diversification, professional money management, and constant monitoring, but these benefits come at a cost.
- According to AUM, the annual (recurring) fee in terms of expense ratio ranges between 1.05% and 2.25% for an equity-based system. This expense ratio covers fund management fees, marketing, sales costs, etc.
- Fund managers typically multiply the entire portfolio frequently, which adds costs and reduces mutual fund returns.
- Exit loads are imposed if you go out within a specified period.
- Finally, the reason your mutual fund returns are hampered is over-diversification.
Because of these factors, over the longer time frames, these fees can have a significant impact on returns.
Now let’s talk about the type of mutual fund investing. Before investing in any mutual fund, we often review the stocks it invests in.
And at least once, you’ve probably thought: “The stock the fund manager invests in doesn’t have the potential to deliver massive returns. If I were a fund manager, I would invest in another stock.”
So, by investing in mutual funds, one way or another, you are giving the wheel of your investments to the hands of your fund manager. Even if you hold stock in your mutual fund portfolio, you won’t have it in your Demat account!
Well, that’s the story of mutual funds. After considering all the factors, it is safe to say that mutual funds may be a good investment option but they are also riskier.
So, what is the best investment option? Well, it is nothing but “ready-to-invest portfolios”.
What are the ready-to-invest portfolios?
The Investment Ready Portfolio is an intellectually curated portfolio. Each portfolio consists of 5-20 stocks and is actively monitored by experts.
You may be wondering if this concept is similar to a mutual fund; Let’s understand what distinguishes them.
How do ready-made portfolios differ from a mutual fund system?
1. No insurance period
If you exit before the time frame mentioned in an investment fund, you have to pay the burden of exit. Although it is desirable that a longer time frame is better for accumulating and growing your investments, you can choose to exit as you like with ready-to-invest portfolios.
2. Investment cost
Mutual funds charge up to 1.05% – 2.25% as an expense ratio. So, if you have a Rs 1,00,000 mutual fund portfolio, you will have to pay an expense ratio of Rs 1,050 to Rs 2,250 annually. A ready-to-invest portfolio starts at an affordable price.
3. Take control of your investments
Unlike mutual funds, you can control your investments. If you don’t like a particular stock in your portfolio, you can control the removal of that stock, and your portfolio will be rebalanced.
4. Stock ownership
If you invest in a Mutual Fund, you will receive units of the fund in your Demat Account according to the Final Net Asset Value. So, whether you buy mutual fund units in the morning or afternoon, you’ll still get them at the end of your NAV.
But with investment ready portfolios, you can invest at any time during the day, and the investment will be made at the current market price of the shares in your portfolio. You will also get ownership of the share you purchased.
In conclusion, ready-to-invest portfolios are slowly growing in popularity among retail investors as they understand and experience the benefits of investing in them.
So, the next time you’re considering investing in a mutual fund, consider looking at portfolios that are ready to invest.
The author is the founder of TejiMandi
(Disclaimer: Recommendations, suggestions, views and opinions provided by experts are their own. These do not represent the views of the economist)
Originally published at San Jose News Bulletin
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