Mutual Funds more suited for beginners than direct stocks

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MUMBAI : I’m 21 years old, and I started investing in equities in October 2020. Since then I have managed a gain of 2-3 % on my portfolio.

My total amount is 40,000 rupees and my portfolio includes some shares which I purchased at very high price such as Piramal at Rs1,900, Yes Bank at Rs18, Wabag at Rs280 and Infibeam at Rs44. How can I manage to overcome such losses and make my portfolio to gain more? And any suggestions on how can I make an entry in bonds, debt funds/mutual funds at a very beginner level?

Yash Kapoor

Answer by Harshad Chetanwala, co founder,

Your plans to understand different investment options and investing in them at the age of 21 is very promising. The fact that you plan to start investing at young age gives you the advantage of allowing sufficient time for your investments to grow. Coming to your present investment in direct equities, your purchase price for the companies are around a 52-week high. One needs time, right information and resources on regular basis to invest and manage a portfolio of direct equities. Some research about the company can help you decide if the stock is good, available at reasonable valuations and if it has good growth potential. This will help you take a more informed decision and reduce the possibility of a loss in future.

Alternatively, consider mutual funds to invest in different asset classes like equities, debt, money market and gold as well. As you are starting with your investment, mutual funds can be the right instrument to begin with. Instead of investing in direct equities, you can look at UTI or HDFC Nifty Index Fund along with Mirae Asset Large Cap Fund to begin with, where your money will get invested in well-established large companies through these funds. The risk in these funds is less compared to direct equities as mutual funds are more diversified and managed by professional fund managers.

Avoid investing in Mid Cap, Small Cap, Sectoral and Thematic funds at this stage as they are more volatile and have higher risk. Equities are meant for long term where your holding period should be more than five years. If you are looking to invest for short term, ie less than 1 year, then you can invest in liquid or ultra-short duration funds where the risk is low and the returns can be close to savings account or fixed deposits.

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