What is the difference between

wealth baskets and mutual funds?

WHAT SHOULD BE YOUR AIM?

SARASIJ MAJUMDER

A wealth basket consists of a carefully curated collection of financial assets like Stocks and ETFs, selected by qualified experts. The wealth baskets are built around a particular theme or investment strategy. On the contrary, a Mutual Fund is a pooled fund, wherein investors can combine their capital, which professional fund managers subsequently manage to invest in a diversified range of assets.

Let’s explore the distinction in investment approach for an investor. Let’s say an investor is trying to decide between investing in a Stock Basket versus an Equity Mutual Fund, which one should the investor opt for? Here are some of the key differences one must keep in mind

Custody and Management of Portfolio: First and foremost, it is important to understand that a stock basket offers direct access to the stocks, once an investor purchases the pre-compiled basket of stocks, all the stocks in the basket are transferred to the investor’s demat account, further any dividend from the stocks are also transferred to the investor. Mutual Funds, on the other hand, do not transfer the individual stocks to the investor, there is no need to create a demat account. Instead, the investors hold units of the Mutual Fund at the Fund’s NAV, which is determined based on the value of the underlying securities. As such, the stock basket will allow more control over the investments. A mutual fund, however, does not allow the investor to tailor the portfolio in any way, the stocks are selected and managed by the fund manager based on the fund prospectus.

Risk and Expertise: While both Mutual Funds and Stock baskets offer a ready-made portfolio, stock baskets offer a more concentrated and direct exposure, and as such considered a higher risk-high reward instrument compared to Mutual Funds. Stock baskets are better suited for investors who have a certain degree of knowledge and expertise and have high-risk tolerance. Mutual Funds on the other hand have restrictions on the amount of risk they can take, there is sufficient diversification, there are internal hedges in place, and there are constant reviews conducted to ensure that the portfolio continues to perform as intended. These are appropriate for investors with no market knowledge, and who have very low risk tolerance.

Diversification: A stock basket offers exposure to a concentrated list of stocks, aligned with a specific theme, sector, or investment ideology, hence it does not offer extensive diversification benefits. It is more of a high-risk-high-reward tool. Mutual Fund on the other hand provides significant diversification benefits. They can invest in over 100 companies across various sectors and market caps. This safeguards an investor against concentration risk and market volatility. But, rate of reward also reduces.

Fees: Fees for a stock basket can differ, depending on whether the stock basket is compiled by the research team, or by an AI-based software. The fees are charged, over and above the investment amount. For Mutual Funds the Fund Manager’s fees are deducted from the overall pooled funds and fund NAV is calculated accordingly.

Capital: Stock Baskets require an investor to purchase each stock in the basket, as a result, the capital required to invest in a stock basket tends to be higher. On the other hand, mutual funds are a pooled investment vehicle, an investor will be purchasing units of the mutual fund, at the NAV of the fund, as a result, an investor does not need much capital to get started.

WAY AHEAD:--

1.0 Start with NIFTY FIFTY MF—Direct. SIP mode. Follow the rise, and fall of stocks in the FUND, and Market movement. Gain experience.

2.0 After you gain  some exposure, and read FUNDAMENTALS on Investment in STOCK MARKET, develop a BASKET of Stocks, based on your own study, and experience of best of  NIFTY FIFTY stocks. Shall not exceed 10 in number, and diversified over sectors.

3.0 OPEN A DEMAT ACCOUNT, ALLOCATE MONEY.

4.0 Start buying stocks in small quantities, and gain experience, in buying, selling, moderating the basket. Gradually develop a GOOD PORTFOLIO.

5.0 Alternate to 2 to 4 above:- Some investment companies advise on BASKET. Be a member, and follow their advice. As for example—"Money 4 you” are not bad. There are more. Study, and select.

6.0 Time to time—I also publish basket in my BLOG—keep a track, if you are interested.

NOTE:- BLOGGER has over 50 years of very successful exposure, and experience in stock market.  Some of my friends call Blogger –INVESTMENT WIZZARD. The above write-up is based on hand on personal expertise, and experience of Blogger.

IMAGE:-- NET.