Mutual Fund or Stock Market, Which One to Choose for a Better Return with Lesser Risk

In today’s world, a salaried person needs a lot of guts and fortune to dream for a better future.

Why am I saying so?

Because to meet a bright and glorious future one needs a lot of money which is, itself is a dream for the middle class.

After meeting all the monthly expenditures, whatever left he calls it a saving, and with that, he plans for his children’s education, his daughter’s marriage, and the final goal is a home for himself.

Luxury things like picking up an expensive car, going on an exotic vacation is a distant dream for him. 

But things can be different if he invests his savings in the right assets, and this is the only way available to a middle-class man to change his fortune.

Now, the next question is what are those golden nuggets assets which can change fortunes. 

So, the answer to the question is, it can be a Real estate, stock, or mutual fund. 

But as far as real estate is concerned, you need to have first colossal money to invest and liquidating real estate. i.e. converting assets into cash is a bit difficult task. So, what we left with are Stocks and Mutual funds.

It fascinates us when we read the news that investing in “x “stocks can give you high returns or just investing $166 on “y” stock can get you a billionaire tag in 10years. It may sound rhapsodic to see the prominent virtual figures in papers by investing in small amounts.

Let’s understand which are the factors that move stock “X” or “Y”.

Certain microeconomic factors can cause the markets to move or make it fall. These are:

1. Monthly Interest rate announcements

2. Job reports

3. Inflation rate

4. GDP 

These are the factors that state the broad economic position of a country. Let’s analyse one by one

1.Monthly Interest rate announcements: Normally, the central banks of a country announce the interest rates monthly. If the interest rate is low, that indicates money is available for the companies at a cheaper rate. That’s a good sign for a country. On the other hand, if the interest rate is low people will spend more by purchasing a house or car.

2.Job Reports: Government announces job reports on a monthly or quarterly basis. If the reports are positive, that shows the spending capacity of people will be more, which will drive the economy.

3.Inflation Rate: The inflation rate determines the rate at which goods are increasing. The moderate inflation rate is good for the economy. A high inflation rate is not suitable for the economy as people will tend to spend less.

4.GDP: It describes the consumption pattern of an economy. If GDP is growing, that means people are spending, which means there is demand in the market.

These are the broad indicators of an economy that will help you to invest in stocks.

For example, if the interest rate is low, then people will buy more cars. Then you can pick up the car industry or the industries which are directly related to the car industry like the battery industry. Then among the car industry or battery industry, you need to analyse which company is doing better. In this systematic way, you can invest in the stock market. But it would be best if you had a deep understanding of the economy and must be able to analyse the company’s financial data to invest in a stock.

However, if you are not technically equipped to analyse as mentioned above, you can always choose a mutual fund.

Depending upon your risk appetite, you can select various categories of mutual funds like small-cap, large-cap, mid-cap.

There are specific mutual funds which are industry-based alike banking and financial mutual funds which will invest in only banking and financial stocks.

One may ask what a mutual fund is and whether it is advisable to invest in a mutual fund.

If I have to explain to someone who doesn’t have any idea about mutual funds.

I may describe it as there would be one fund manager who is an expert in the stock market, and he has all the support systems to do the necessary research before investing in any stock. Each mutual fund will have a defined goal.

For example, investors looking to create wealth without taking too much risk and volatility then their money can be pooled together for the fund and will be invested only in large-cap stocks like Apple, Microsoft, etc.

The fund manager will take all decisions necessary for managing the funds. From our investment amount, a certain percentage, i.e. 0.2% to 0.5%, will be deducted as an expense. An expert will manage the fund hence lowers the risk.

Depending upon your risk appetite, you can choose various categories of mutual funds like small-cap, large-cap, mid-cap.

In reality, the hind sighting always seems effortless. What is challenging is to analyse which stocks to invest in, which can provide such high returns in the future.

You need loads of experience and knowledge to play the gamble. However, if you have the potential to take the risk, then you can go for it.

As a retail investor, there are many risk factors involved, and it is tough to grab a multi-bagger stock.

So, if one can able to understand and do a proper analysis of these financial instruments, they can able to change your fortune.