Direct Equity
- Direct equity involves investing directly in individual stocks of companies listed on the stock market.
- Direct equity has higher risk as the performance of the investment depends entirely on the performance of the stocks that you have chosen.
- Direct equity requires significant research and knowledge about the stock market and individual companies to make the informed investment decisions.
- It allows for greater control over your investment portfolios, as you choose which specific stock to buy or sell.
Mutual Fund
- Mutual funds pull money from multiple investors to invest in a diversified portfolio of stocks, bonds or other securities managed by professional fund managers.
- Mutual funds offer diversification, which helps to spread risk across various securities and reduce the impact of poor performance of individual stocks.
- Ideal for investors who may not have time expertise or resources to research and manage individual stocks.
- Mutual funds typically have lower minimum investment requirement compared to direct equity, making it much more accessible to a wider range of investors.
Conclusion
In conclusion, all investments carry some degree of risk and can lose value if the overall market declines. In the case of individual stocks, if the company gets bankrupt, the entire amount becomes zero but in case of mutual funds, it’s considered a little safer compared to stocks because of its diversification, which helps to mitigate the risk and volatility in your portfolio.
So, keep in mind that mutual funds and direct equity both have risk involved in it But because of the diversification in mutual funds the risk tolerance for an investor reduces giving them a good amount of return.