InvestorQ : Which one of these is a better choice; ETF or direct equity?
prachi Patwardhan made post

Which one of these is a better choice; ETF or direct equity?

1 year ago

I think the choice is completely based on your financial and risk profile. If you begin investing early, and invest for the long term (15-20 years) in stocks, you can in all probability expect a sizable corpus at the end of your investment horizon. This is because stocks funds provide some of the highest, if not the highest, returns among all the investment options available to investors.

Though there is a risk involved with these investments, which is why they give some of the highest returns, investing in these assets for the long term tends to mitigate some, if not all, of the risk involved. And the power of compounding works well with these investments, allowing us for a potentially good corpus at maturity. When you invest in stocks, you not only earn from price appreciation, you also earn in terms of dividends, bonuses and stock splits. This goes a long way in accumulating wealth. But you must be aware that this state is simple yet very difficult to achieve. You need to put in the time and effort to do your homework and do it well. Equities demand a lot of investment, more so of time than money. You need to monitor the market continuously, and you need to spend time in analyzing companies and their business. Since there are so many people involved in the stock markets at any given time, it is not possible to get an accurate judgment of what will happen next.

You operate on a lot of uncertainty, which adds to the risk. If you are willing to put in the hard work towards investing smartly in stocks, and the risk that comes with it, then the chances of you making a fortune increase. Until and unless you are well versed with the dynamics of the markets, it is very difficult get sizable returns in the stock markets. You will need to research companies thoroughly, learn about different companies, understand them and then choose the best for investment. You will also need to diversify efficiently so that you can spread the risk. If you are able to do this, then you should go ahead and invest in equities directly for the long term. However, if you are unsure, then it is better to invest in equity based mutual funds and ETFs allow professionals to do the investing and research for you. Of the two, mutual funds are less risky as it is much more regulated. And it is a much better option for wealth creation if you are inexperienced with direct equity investing.