Introduction
Mutual funds, index funds, and stocks are the best options for investing long-term one by one we will discuss in the below paragraph as we know that stock is a direct investment and there is more risk involved in stocks because investors directly invest in any stock if they don’t have good knowledge how to select stock so there might be more risk to select the stocks. Mutual fund and index fund are safest investment option rather than stocks investment.
What are mutual funds?
As we know a mutual fund is a pool of money of investors and it is managed by professionals who is highly qualified and have great experience in managing funds. In mutual funds, the risk is moderate than in stock investments. In short, your money is managed by professionals. It is beneficial for long-term investment it is best for those who do not want to invest directly in stocks. Only minimal commission investors give to mutual fund houses or any AMC. For example, if an investor invests 10000 rs in any mutual fund so only 1 % or below 1% commission (expense ratio) is given to mutual fund houses or AMC. This means 100 rs of 10000 will go to mutual fund houses or AMC. Two-way investors can invest in mutual funds one is a Systematic Investment Plan and the second is a lumpsum. So in comparison to stock investment mutual fund investment is an easy and less risky investment.
What are index funds?
An index fund is a type of mutual fund that mirroring a particular market index such as NSE Nifty or BSE Sensex, In comparison to mutual funds index funds charge a low expense ratio (commission) and low risk associated with it. The way Nifty 50, Nifty 100, or many more indexes perform the same index fund will perform. Overall it is the best diversification investment for investors. Suppose any investors do not want to take higher risk so an index fund is the best option for the long term. However, the performance of index funds is a bit low in comparison to mutual funds but it is the safest investment option and also involves low risk in comparison to mutual funds.
What are stocks?
Share or stocks represent the ownership in the company. When any person buys or sells a share of the company that person becomes a shareholder of the company and gets profit and loss when the company grows and degrow. As I discussed above in the introduction there is higher risk in stocks and more volatility in comparison to mutual funds or index funds because investors directly invest in stocks.
If you invest in shares yourself, you have complete control over your investment portfolio. If investors don’t have knowledge for selecting any stock it will be very risky and if investors have good knowledge of how to select stock it will good option for investing long term.
Conclusion.
As we know everyone wants to become investors but they can’t execute due to a lack of knowledge of investing, and where they can park their money so Mutual funds, Index funds, and stocks are the best options but if I talk about risk and safe investment option so index fund and mutual fund is safest investment plan because these funds are managed by experienced and highly qualified professionals who work more than many year but stock investment is more risky than mutual fund and index fund because in stocks investors involve directly picking stocks it is more volatile and more risky. So if you want to take a low risk go for an index fund and if you want to take a moderate risk go for a mutual fund and if you want to earn more return go for a higher risk that is stock investment.