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Investing directly in stocks, if you want to do it well, is highly complex. Stocks are from a bewildering array of companies that are in different industries, have differences in size, financial structure, track record, competitive environment and a lot more.
Investing directly in a small number of stocks also has more risk than investing in a large number of stocks. Analyzing companies and deciding which stocks to buy is time consuming. Furthermore you need to keep track of company developments and have a system in place to keep track of the performance of your investments.
It is for these reasons that you should consider investing in mutual funds.
Typically, mutual funds combine the savings of a large number of investors and manage it as a single pool of money. Equity funds then invest in a significant number of companies.
Instead of you worrying about which stock to invest in, professional fund managers do the job backed up by a team of analysts that constantly researches the companies that are designated to them.
Also, there is an extremely beneficial method known as a Systematic Investment Plan (SIP), which allows for automated, regular investments of a relatively small amount of money, which is something that is difficult to implement when you invest directly in equities.
THERE ARE OTHER ADVANTAGES OF INVESTING IN MUTUAL FUNDS INSTEAD OF DIRECT EQUITIES
- Mutual funds offer instant diversification
- Mutual funds are convenient
- Mutual funds are cost efficient
- Mutual funds are well regulated
- Mutual funds offer liquidity
- Mutual funds offer a choice of investments depending on your risk profile