Being a financial Planner I always suggest Mutual Fund/PMS/AIF than Direct Stock investment to Execute My Plans
Advantages of Mutual Funds:
1. This ₹5000 will be spread across 25-30 companies.
2. Out of these, 5-10 companies may not exist after 15-20 years (Non-Systematic Risk).
3. However, 4-5 may become multi-baggers.
This portfolio is expected to yield:
- ₹15,000 in 10 years, ₹27,000 in 15 years, ₹48,000 in 20 years, assuming a 12% CAGR.
- ₹26,000 in 10 years, ₹59,000 in 15 years, ₹136,965.17 in 20 years, assuming an 18% CAGR.
If you start trading directly in this market with this ₹5000:
1. Brokerage, DP transactions, and AMC costs are high.
2. You can't maintain a sufficiently diversified portfolio due to a lack of knowledge and resources to mitigate Specific Risk
3. There is a higher probability of balloon companies rather than multi-baggers in your portfolio (balloon companies boost their news to become popular and attract common investors, while multi-baggers are less popular, hidden gems for an unexpected informed investor).
Comparing direct stock purchase vs. mutual funds:
- Mutual funds have a consistent long-term reasonable performance and high probability to achive
- Direct stock buying is high risk, high return, with low consistency and low probability to achive
Nandakumar Varier
Fiknowledge
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