Finance & Insurance

Is it Wise Picking Stock with the Help of Mutual Fund Portfolios?

Are you wondering how to buy mutual funds? Stock picking with mutual fund portfolios for assistance could be a smarter blueprint as per several experts. It is often regarded as the best way to purchase mutual funds as well. Investing directly in stocks is not that difficult as per investors and experts. Stock picking is possibly the most convenient stage of the entire process, i.e., they simply observe the top holdings of the mutual fund schemes that are performing the best and deploy investments in those stocks likewise. Some more innovative investors also derive their insights and market cues from managers of portfolios when they speak on television channels or even from business news, views, and articles. Those who are more academic by nature look out for ideas presented in leading columns and interviews of top investors and industry analysts. 

This may sound a little on the complex side, although it is not as difficult as it seems in most cases. Newbie investors have stated that the steps to buying mutual funds are not that problematic, and there are several stocks which are common factors in portfolios of mutual fund schemes which have been successful over the years. When there are multiple managers of funds making bets on similar stocks/shares, it clearly indicates that those make for solid investments down the line. This is what is believed by investors who follow the principle, as mentioned above, of investing. 

Stock Market vs. Mutual Funds- How to Decide?

Say you are investing in a good financial product such as the Mirae Asset Emerging Bluechip Fund or considering a direct investment in company stock. Which one should you opt for? Should you take the cherry-picking approach? Experts and industry players remain divided over their assessment of the basic scenario behind the question. One question comes up that if investors remain so convinced about the success and suitability of these fund managers/experts and stocks, why do they refrain from deploying money into these specific schemes in question? 

It would naturally be a convenient and simpler way to gain exposure to stocks. Like for instance, if you invested in the Motilal Oswal Nasdaq 100 ETF, you will get exposure to various successfully performing company stocks in one basket. You can rely on the management skills and expertise of professional fund managers while earning good returns at the same time. Some investors state that such portfolios usually comprise around 30-50 individual stocks, and they also believe that managers of funds unnecessarily gain exposure to multifarious stocks to stay in sync with the specific index. According to them, this strategy eats into the prospects of earning unbelievable returns amassed by a few top stock holdings. These investors often highlight the fabulous performance of companies like Reliance Industries and HDFC Bank to support their theory. 

This usually indicates that a large majority of such investors are expected to have a more concentrated portfolio spanning only a few mid or large-cap stocks that they believe will perform well in the future, just because they are owned by successful mutual fund plans/schemes. A portfolio that is as densely concentrated amongst a few options will naturally have its fair share of risks in the bargain. A significant drop in either one or two stocks may lead to sizable losses as well. This is one of the key reasons behind the mutual fund schemes having deployed investments in multiple other stocks. Diversification is the strategy that will prove beneficial in case of any sudden or unexpected drop in top stock holdings. Of course, diversification does lower overall portfolio returns to an extent, but it spreads out the risks too. 

It is not always possible to gain insights into how the minds of professional fund managers function and what they perceived when they first purchased these successful stocks. They may have chosen them for a specific price point or a targeted stop loss/price. It is not always possible to find out these things since managers are not allowed to discuss individual stock prices and company stocks in the public domain. Regular people can only learn about stock selling/buying after a sizable period or delay. This can pose a problem, particularly when it comes to selling stocks at a suitable time. Of course, some investors may have solutions for fixing these issues in the future. However, at the moment, regular investors should opt for mutual fund investments since risks are spread out through diversification, while professional fund management is another plus point. 

Some Basics that Investors Should Know

Asset allocation is a process where investment portfolios are divided into various categories of assets, including bonds, stocks, and cash. The procedure of working out which particular asset mix should be held in the portfolio is deeply intrinsic and personal. The allocation of assets that is suitable for you at any given time will majorly depend on your overall investment horizon and risk tolerance abilities. The time horizon for investing is something you have to look at carefully. This is the expected years/months for which you will be investing in order to accomplish specific financial objectives. 

Investors who have longer horizons may be more comfortable with handling more volatile or riskier investments since they can patiently ride out economic fluctuations and market cycles. Investors saving up for short term goals will naturally take on lower market risks owing to the smaller duration involved.

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