If you are reading this, you probably understand that we all need to invest our money to protect it against inflation and build wealth. While there are many different assets you could consider investing in, a young earner in India could do very well over the next decade or two by owning pieces of big businesses in India, also called equity investing. The stock market is a great option in this context.
Should you buy individual stocks?
The stock market is an electronic marketplace where individuals can buy and sell shares or pieces of companies. While this is one option, my opinion is that trying to compound your money by picking stocks is a terribly difficult way to build wealth for the average person who has a full-time job/other passions. The question then arises- if I can earn reasonably high returns from stocks, but stock picking is hard, is there a more sensible way to enjoy the benefits of equity investing without having to pick stocks? The answer, fortunately, is yes.
Do less work, make more money- Mutual Funds (MF)
This is where the concept of mutual funds come in. Mutual funds are highly regulated entities that allow regular investors to buy “units” of the fund. Full-time professionals (typically CFAs/CAs/MBAs) manage the pool of money collected from different investors. They perform the task of stock picking, tracking, selling, and rebalancing as their full-time job. As a result, the returns they generate for their investors could be significantly higher than what you or I might achieve on our own, with our limited knowledge, time, and experience. In my personal opinion, mutual funds are the smartest way for individuals to participate in the stock market and earn above-inflation returns over a long period of time. So then should you just start investing in mutual funds by yourself? It depends.
While SEBI has made efforts to simplify the world of mutual funds for the average individual investor, there still exist 1,000+ different mutual fund products from 38+ companies over 25+ categories. Building a mutual fund portfolio thus requires some base level of knowledge, confidence, and time. If you are willing to put in the effort and want to build your own portfolio, opting for direct mutual funds could be a good way to build long-term wealth. However, if you are not sure about building your own portfolio, ensuring smart asset allocation, being able to rebalance as goals/needs change, and behave the right way in the face of volatility, a Mutual Fund Distributor (MFD) could prove critical along your decades-long journey to building generational wealth.
Do even lesser work, make even more money- Hiring a licensed Mutual Fund Distributor (MFD)
If you are someone that wants to enjoy good returns from equities and-
- If you have limited time/interest in understanding and learning about mutual funds
- If you want a guide/partner along the way to help ensure you stay on track and are doing the right things
- If you want professional counsel/advice without having to pay out of pocket
- If you are interested in outsourcing the wealth-building and portfolio management task to a professional
Then working with a mutual fund distributor can be very useful long term. The best part is that there is no upfront cost for the investor, ensuring there is no practical barrier to stop you from working with one. Check out Part 2 for more information on how this works, what benefits you could receive, and how MFDs receive compensation.
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