Many mutual fund investors are enamoured by stocks these days. They believe that investing directly in stocks is better than investing in them through mutual funds. Mutual funds are not ‘sahi’ for these investors. They comment angrily below every mutual fund story to show their displeasure. There is nothing wrong in trying to invest directly in stocks, but have you done your homework? If no, here are some important points you should consider before taking the plunge.
First thing for you have to do is to find out whether you want to invest your entire corpus in direct stocks. That is, are you planning to sell your equity mutual funds and invest the entire money in stocks? Or are you going to hold on to your equity investments and start new investments in stocks directly? Or are you stopping your SIP investments in mutual funds and starting to invest via SIP in a basket of stocks?
This is extremely important because the answer would tell you about the magnitude of your responsibility. For example, if you are going to handle the entire equity portfolio yourself, you should do it will full awareness that you going to take an important step that involves a lot of risk. Also, you should take full responsibility of it and be ready to devote a great deal of time for it.
That brings us to the most important factor: time. Lockdown, it seems, has resulted in a lot of spare time for many individuals. According to investment experts, time along with lack of avenues spend is fuelling the new love for investing directly in stocks. In some cases, trading in stocks. Are you sure you would be able to devote the time required to keep track of your stocks, follow news and developments in the company, read its balance sheets?
Do not rely on the second-hand information all the time â mostly, the news would reach you very late and it would be very late to base any action on it.
Do you understand the basic concepts of economy and business? As said earlier, it is extremely important to keep track of developments in the economy and connect it with your investments. You should be able to make the connection â it requires some understanding about the economy and various businesses. Do you already have the necessary knowledge? Or are you working on it?
Lastly, books, podcasts, interviews, and so on, can only give you a rough idea. Putting it to practice is a big task â this is not to discourage you, only making you aware that the task is huge, and you should be mentally prepared to pitch in with the extra effort. You should also keep in mind that there is a learning curve involved in everything, and you should not get impatient or dishearten very easily.
(This article is part of a series ETMutualFunds.com has started on the issue of direct investments in stocks.)