Mutual Funds Or Equity, What’s The Best Investing Platform For Millennials?

Among millennials, investing in capital markets has never been more popular. In fact, investing in stocks is one of the most reliable ways to grow wealth, if an investor knows how to play his or her cards right. The best investors are level-headed and often moved by reason, as opposed to sentiment. Such investors can make money in both bull and bear markets.

Millennials are the most significant segment of investors in Indian capital markets.

Millennials are more digitally savvy than any generation before them. They grew up using computers and the internet and have adapted well to using digital devices like smartphones.

Digital devices facilitate the buying and selling of stocks. But while apps make it easy to buy and sell shares, knowing what stocks to buy and sell is possible only with some knowledge about the market.

Today, access to information about stocks and markets is readily available. There is a plethora of data to help investors. However, the vast amounts of data available online have given rise to new challenges. To successfully grow their money, investors have to find a reliable source of information which is not always easy. Relying on platforms that don’t offer the right insights is likely to result in loss-making investments.

There are other challenges to making the right investment as well.

Millennials yearn to understand the market better to make the right investments. Yet though they have lofty goals about growing their wealth, most of them are unable to translate their plans into action. Thet are also held back from making the right investments because they don't have definite plans about what they want to do after retirement. Without such plans, they cannot come to a ballpark figure of how much return they need from their investments.  

In addition to not have very clearly defined long term goal, millennials are also wary of intermediaries, agents, and financial professionals. Most believe that such caution on the part of investors is justified.  

The features of an ideal trading platform for millennials are mentioned below.

Millennials don’t want to make an investment and forget about it. On the contrary, they want to exert control over their investment. They also want to make an investment based on emotions rather than rationality. Unlike earlier generations, millennials want to invest in companies that espouse sustainable environmental practices. They also want to use a platform that understands them well. Such a platform should offer them a hyper-personalised experience. Finally, they want to invest using a trusted digital ecosystem that provides real user ratings and a complete history of every transaction. 

After understanding millennials’ requirements, it becomes clear why, for millennials, the direct equity route is preferable to mutual funds.

Mutual funds offer investors less control over their investment. On the other hand, direct equity investments offer investors greater control. Also, the fee structure of mutual funds is questionable, while the expenses in directly constructing an equity portfolio are transparent. Furthermore, mutual funds offer inconsistent performance, are designed to meet general needs, and are long term in nature. On a positive note, they can be more tax-efficient for high-churning portfolios.

Direct equity investments can be fully aligned with the belief and goals of investors. An investor, who has a sound understanding of financial markets, can invest using his or her knowledge to beat the market. Also using the direct equity investment route, investors can customise their investments by putting money in companies that share the investors’ values. An investor who believes strongly about sustainability and environmental causes can invest in firms committed to such purposes.

By investing directly in equities, investors can take on as much risk as they like. Finally, if their investments are well-timed, they can be more tax-efficient than investments in mutual funds.

The best way to achieve investment goals is with the help of an adviser/coach who can hand-hold and customise a portfolio based on individual needs. Such an expert can help balance a portfolio’s structure with individual needs. Investors need to note that constant interaction about needs and wants along every stage of an investment journey can only be provided by an adviser who is not incentivised by hidden fees to make recommendations.

 The author is Co-Founder and CEO Pickright Technologies