Home >Money >Q&a >MFs offer better diversification than direct stocks for investing small amounts

As a student, at the age of 19, where should I invest my pocket money which is around Rs3500 after all my expenses. I already have some direct equity exposure.

Shubham Popli

Answer by Harshad Chetanwala, co founder,

It is very encouraging to see your plans to invest pocket money in equities. The earlier you start, more beneficial it is for you in long term. As you have just started investing, I would suggest you to implement one important rules of investing i.e. always invest keeping an objective and time horizon in mind. Along with this, knowing the different asset classes will help you to take care of your savings and investment in future.

Equities by nature are for long-term investing and you should at least hold them for 5 years or more. You can invest in direct equities using your pocket money, but that will restrict the universe of companies you can invest in and your opportunity to diversify will be limited. Hence, mutual funds can be a better route to begin with your investment in equities. In mutual funds, your investments are managed by experienced fund managers, at the same time it invests across different companies and sectors irrespective of your investment amount. You can start your investment with any Nifty Index Fund and Large Cap Funds where your money will be invested in well-established large companies in India. The risk in these funds is less compared to any other equity mutual funds.

You can add large & mid cap funds or flexi cap funds in future when you start gaining more confidence after some time. Avoid investing in mid cap, small cap, sectoral and thematic funds in the beginning, they are more volatile and have higher risk. Your investment experience with any asset class will define how effectively you will use it in future for yourself. If you end up having bad experience with equities right now, you may become over-cautious in the future. This can result in you losing the opportunity to make the most from equities for yourself in coming years. So, stick to mutual funds at the beginning, hold it for long term and have patience with your investments.

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