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I want to start investing investing in stocks directly. Should I just pick the stocks from major mutual funds?

Anmol Gupta

Not recommended for following reasons.

  1. Mutual Funds are actively managed portfolio consisting variety of stocks, bonds and other instruments in certain proportion which is determined on basis of extensive research. In individual capacity, it’s not possible to mimic the exact portfolio with the amount of money you would have.For instance, you might not be able to hedge your portfolio as buying certain derivates call for margin requirement which is unlikely with small amount of money. Not hedging is a big risk.
  2. You get to know the Mutual Funds portfolio on monthly basis only so you don’t get to know what happens in the portfolio on daily basis. You are going to miss some positions which the mutual fund manager is going to take as you get to see only the snapshot of portfolio once in a month.
  3. You are likely to incur a higher % of your money as transaction costs (like brokerage) as compared to mutual funds.

In my opinion, its better to go with direct plans of Mutual Funds if you want to mimic the portfolio. Otherwise you should do your own research and create your own portfolio as just picking up the stocks from the Mutual Fund portfolio is not going to help.

Hope it helps. Happy to take up any further questions.

Originally answered on Quora.

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About the Author
Anmol Gupta
Anmol is CEO at 7Prosper. He is SEBI Registered Investment Adviser, with expertise in Finance and Technology domains. Anmol is committed to help people achieve their financial freedom.

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