Should you invest in a fund or buy shares?

If I take the portfolio of a fund and keep investing in the stocks that they invest in, I should be fine.

And, by doing this, I can avoid the expenses of mutual funds. What do you think?

- Shalini Ramchandran

The portfolio (total investment) of a mutual fund is never static; it keeps changing.

A fund manager forms a view about a company and invests in it if he finds the investment worthy.

Once he gets the price or return that he wants, or his view on the investment changes due to any other reason, he sells the stock and looks for other options. So, while it may sound easy, keeping a close track of the fund's portfolio on an individual basis and trying to closely follow the fund manager is bound to be both tough and time consuming.

The essence of investing in a mutual fund is hassle-free and convenient investing. You will miss out on both.

Moreover, you will only get to know about the actions of the fund manager after a gap of one month, when the portfolio disclosures are made. During this time, between his last and current disclosure of the portfolio, he might have sold some stocks at a great price.

But by the time you read his latest portfolio and decide to follow suit and sell the shares, the price may have fallen and you would not get a great return. Or, he may have picked up some shares really cheap during this time and, by the time you buy it, the price would have shot up.

Soon, trying to follow a fund manager will start eating up on your time.

Also, don't forget that a fund manager has the muscle of crores of rupees through which he can build a diversified portfolio. An investor in his individual capacity may not be able to build such a portfolio due to lack of such a huge investment amount, and hence lack diversity. If a fund has invested in 23 stocks, do you have the money to invest in all the 23?

If you invest in a mutual fund, you can start with as little as Rs 5,000 but you will not be able to buy 23 stocks with it.

Lastly, we don't think mutual funds are alarmingly expensive so as to deter you from investing through them. In fact, you have missed out the fact that when mutual funds buy and sell stocks in their portfolio, they do not have to pay any capital gains tax. But when you buy and sell shares in your individual capacity, you will have to pay capital gains tax at the rate of 10% in addition to brokerage and Securities Transaction Tax.

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