It’s a myth to believe that mutual funds are less risky than direct stocks. I would justify this statement by focusing your attention towards the recent performance of several fund houses has come as a shocker. There has also been a fall in net asset values to about 40 – 50 percent. This is much worse than the indices. Investments in mutual funds or direct stocks need to be done with a long term view. The difference between direct equity(stocks) and a mutual fund is that the latter reduces the risk element as the investments are managed by professional fund managers.

The investor should not be under the misconception that a mutual fund is a cushion against risk. If the Indian stock market is in a bearish phase in general, there is very little that your fund can do if your investments were made just prior to the onset of bearishness. However, a mutual fund, unlike your direct stock investments, allows exposure to more than a handful of stocks, and the fund manager even has the luxury of holding cash which allows him to manage market volatility more effectively.

While all funds have such above mentioned options, there is plenty of difference in performance. Hence, one needs to go in for a careful construction of portfolio. I would like to end this article by saying that the chosen mutual funds will mirror the stock indices performance as they both side the same curve in any economy.