Mutual funds are more suitable for beginners than direct stocks
I am 21 years old, and I started investing in stocks in October 2020. Since then, I have managed to gain 2-3% on my portfolio.
My total amount is 40,000 rupees and my portfolio includes stocks that I bought at a very high price such as Piramal at Rs 1,900, Yes Bank at Rs 18, Wabag at Rs 280 and Infibeam at Rs 44. How then I manage to overcome such losses and make my portfolio earn more? And any suggestions on how to get into bonds, debt funds / mutual funds at a very beginner level?
Response from Harshad Chetanwala, Co-Founder, MyWealthGrowth.com
Your plans to understand and invest in the different investment options at the age of 21 are very promising. The fact that you plan to start investing at a young age gives you the advantage of allowing enough time for your investments to grow. When it comes to your current direct equity investment, your buy price for companies is around a 52 week high. It takes time, good information and resources on a regular basis to invest and manage a direct equity portfolio. Some research on the company can help you decide if the stock is good, available at reasonable valuations, and has good growth potential. This will help you make a more informed decision and reduce the possibility of a loss in the future.
You can also consider mutual funds to invest in different asset classes like stocks, debt, money market, and gold. When starting out with your investment, mutual funds can be the right place to start. Instead of investing in direct stocks, you can start with the UTI or HDFC Nifty index fund as well as the Mirae Asset Large Cap fund, where your money will be invested in large, established companies through these funds. The risk of these funds is less compared to direct stocks because mutual funds are more diversified and managed by professional fund managers.
Avoid investing in Mid Cap, Small Cap, Sector and Thematic funds at this stage as they are more volatile and present a higher risk. The shares are intended for the long term where your holding period must be greater than five years. If you are looking to invest for the short term, i.e. less than a year, then you can invest in liquid or ultra-short duration funds where the risk is low and the returns can be close to the d account. savings or term deposits.
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