APPROACH TO INVESTMENTS
We can invest in stock market in 3 ways. Directly, through Mutual Funds & through ULIP of Insurance companies. Let us analyze each one of these to decide which approach to adopt for optimum results.
1) Direct Investments: If we choose to invest directly in the stock market, we have to handle both the stages of the investments. First stage is to select right share at right time and manage the share portfolio for optimum results. 2nd stage pertains to complete exit from the stock market at times of market excesses. We at individual level lack the time, talent and the infrastructure required for the 1st stage management. If the 1st stage management is not profitable, 2nd stage management is meaningless.
2) Through Mutual Funds: MF is a professional route to invest in stock market. Investments in MF equity schemes are like investing in stock market but through professional hands. Mutual Fund, in itself is not a destination of investments. Therefore by investing in an MF equity scheme, we are in fact handing over our first stage management to professionals. However 2nd stage management as to when to invest and/exit remains with us. I believe, if we attain proficiency in handling the 2nd management itself then also we can create huge wealth.
3) ULIP of Insurance Companies: It is also a professional route to invest in stock market with additional benefits of life coverage. Additional benefits come at additional costs. Before choosing this route, one should clearly understand ULIP’s expense structures and operational features otherwise expected benefits may not materialize.
The quantum of benefits is directly proportionate to the choice of appropriate route and the timing of our actions. Therefore think coolly, consider pros and cons and practical aspects of managements before zeroing in on the appropriate route for investments.
