When you start researching stocks online and their returns, you are doing the most basic analysis and checking the historical performance of the company. But, at the same time, when you look at the index data, you will see different returns in an industry whose stocks you are planning to buy.
This happens because of the success of the industry and the success of the company. Now, the question is which of these may be used in index investing as well in the companies that you plan to buy?
Before jumping into the decision, let’s take a look at what index funds are.
Currency index
Index mutual fund is a type of mutual fund in which you can invest your own money either in SIP or cash. The index is created by selecting a few companies (known as constituents) based on certain criteria, which helps investors invest in a ready-made portfolio. For example, NIFTY 50 or Sensex.
Individual files
When you buy a single stock from a variety of industries by doing your own research, it can be called investing in individual stocks.
Which one is best for you?
Investment decisions should be based on consideration of the above factors.
KNOWLEDGE
If you have enough knowledge of stock analysis, make risk-based decisions, have financial goals, and understand the concept of leverage and asset allocation, you can go for how to choose individual stocks and create your own portfolio.
But, if you are new to the investment market and ready to get decent returns on your investment, it is better if you invest through index funds, because you don’t have to worry about compounding. you are your portfolio.
Risk-Based Investments
If you are willing to take a lot of risk, you can invest through individual stocks by doing your own research. When you invest directly in stocks, you are exposed to various internal management risks, but if you invest in index funds, the performance of the index funds will not significantly affect your investment. a company. This will help you minimize your risk and increase your return. The risk profile can be a criterion for making decisions between index funds and individual stocks.
Industry definition
When you choose a stock, you must compare each company in terms of performance, as well as the performance of the industry. If you are already working in the industry and know how it works and the potential return, it is better to invest in the emerging business, because it will help you in creating wealth.
If you do not have the time and expertise to make comparisons between the selected companies and other companies in the industry, index funds can help you. It will provide constant returns, and protect you in the event of a business failure.
When it comes to investing, it’s important to have a basic knowledge of market-related products if you’re creating your own portfolio. Index funds help you invest with little knowledge of stocks. Inform your investment decisions so you don’t lose your money in the future.
Anushka Trivedi is a freelance financial content writer. Can be connected to anushkatrivedi.com
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First published: December 13, 2022 at 08:07 IST
