1. Fees :
If you buy shares directly through a broker, they will charge brokerage, taxes etc. Again you have to open a Demat account with your broker or bank. The Demat account also attracts Annual Maintenance Charges.
If you invest in Mutual Fund, Fund Houses will charge you a fee, which you don't need to pay separately. Fund houses will deduct it from your fund value.
2. Expertise :
If you want to invest directly in shares, you need to have good knowledge about the company you are going to invest in, its competitors, market conditions etc.
This is not in the case of Mutual Funds. Your fund is managed by professional fund managers, who are experts in these things. You need not acquire this expert knowledge for investing.
3. Capital Gain Tax :
Direct Equity and Equity Mutual Funds both attract Capital Gain Tax at the same rate. But you can save tax in mutual funds. Let's understand it.
If you have a portfolio of 30 shares. Suppose out of these you have sold shares of A Ltd at profit. You have to pay Capital Gain Tax on this profit.
If you have a mutual fund that contains some portion of shares of A Ltd. This Fund Manager sells these shares at a profit. You don't have to pay Capital Gain Tax on this profit.
Capital Gain is only applicable if you sell Mutual Funds Units at profit.
Conclusion :
To sum up, we can understand from above that, if you have good knowledge about the market you should go for direct equity.
If you have selected good companies for the long term in a sizable amount you can save fees because brokerages are for one time only and Annual maintenance charges per year are very nominal. But fees of a mutual fund is applicable until you hold these fund. It may go up to 2 - 2.5% every year.
Hope this article will guide you in making a better investment decision.
Good Information
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