Debt Mutual Funds vs. Direct Bond Investing.
Mutual funds are generally perceived as the most convenient method of investment. They have many positive features, but they also have some limitations that one needs to consider before investing in them. On the other hand, there are many good bonds to invest in India that have better performance than the market average. Here are a few reasons why investing directly in bonds is preferable over mutual funds.
- Cost factor
Mutual funds have a high expense that is spread out over several heads. Not only mutual funds are subject to a professional management fee, but there are also charges such as entry and exit load. When you buy or sell securities, you need to pay an entry and exit fee, respectively. Such charges reduce your net return, which would be higher if you invest directly in bonds. Investors should remember that a high management charge does not always imply a good return.
- Better Transparency
You know exactly how your portfolio performs when you’re in charge of it. When it comes to mutual funds, there’s a possibility of fund managers misusing their power and engaging in activities like window dressing to mask the fund’s actual performance. These unethical practices could include selling the fund’s losers immediately before the end of the quarter to give you the impression of higher performance than is the case.
- Customized Portfolio
When investors begin investing in bonds on their own, they better understand how their portfolio operates while getting better control of their money and gaining knowledge about the financial performance of a company or organization. Investors can personalize their portfolios depending on their preferences to evaluate data and grasp market-relevant facts. On the other hand, in mutual funds, the fund managers have control over your money, and they put your money in multiple companies without revealing proportions. You cannot choose which companies you want to invest your money in.
- Trade execution
If you are a short-term trader, direct investing in bonds is preferable to mutual funds. Bonds have varying maturity periods that may go as low as one year. However, mutual funds are beneficial in the long run.
- Fund Valuation
Fund valuation is done based on statistics like Sharpe ratio and Standard Deviation, which are too perplexing for a non-specialist investor to understand. You may not be able to understand the valuation of your mutual fund scheme if you are unfamiliar with these calculations. As a result, comparing your fund against others to see how well it performs becomes challenging.
- Dilution of returns
Diversification is vital for risk management, and mutual funds are well-known for this factor. On the other hand, excessive dilution of investment leads to dilution of returns. You can distribute funds based on your risk appetite and return demand when you invest directly.
Do you have questions regarding your investments? Do you want to know about India’s bond market? The market is flooded with many good bonds to invest in India. SMEST is here to guide you. Smest Analysis Report provides you with all the information & details to make a better decision.