Is a Curated Stock Portfolio Better Than Mutual Funds?

Stock investing has lured investors for ages. However, stock investing is not for everyone. For instance, while Do it Yourself (DIY) investors prefer direct equity investing, first-time investors may look at equity mutual funds to achieve financial goals. Mutual funds offer a plethora of options for all types of investors. For instance, first-time investors in equity markets may look at diversified equity funds. It is a type of equity fund which invests its assets in stocks across sectors and industries. So are curated stock portfolios better than mutual funds?

What are curated stock portfolios?

Curated stock portfolios or CSPs are a basket of stocks based on different strategies, themes and allocation processes. For instance, CSPs are showcased on online broking platforms for better visibility. 

DIY and market-savvy investors prefer specialised curated stock portfolios. It is managed by Registered Financial Advisers (RIAs) and boutique investment managers. 

Many of the curated stock portfolio space players offer similar products to attract DIY investors. For instance, these products are offered at a low price of Rs 1,000 to bring more investors into this space. 

However, an element of transparency is maintained by curated stock portfolios about asset allocation, screening methods, rebalancing and factsheets. For instance, CSPs offer retail investors several varieties of stocks and Exchange Traded Funds (ETFs), which research analysts and investment advisers back. 

Curated stock portfolios gained traction after the pandemic. Moreover, many DIY investors adopted curated stock portfolios after Portfolio Management Services (PMS) raised the ticket size from Rs 25 Lakh to 50 Lakh. 

How do curated stock portfolios work?

Investors are informed when to purchase and sell the stock basket in curated stock portfolios or make changes to the basket. Moreover, the portfolio style may be based on different themes and ideas, which can be sectoral or even a combination of large-cap, mid-cap and small-cap stocks. 

Many platforms offer curated stock portfolios through stockbrokers. Research Analysts say investors who cannot afford Portfolio Management Services and Alternate Investment Funds (AIFs) may look at curated stock portfolios. 

First-time investors in equity markets may avoid curated stock portfolios. It has a high element of risk and is suitable for investors with higher risk tolerance. However, curated stock portfolios do not give accurate information to make informed investment decisions. 

The baskets of the curated stock portfolios are similar to some mutual fund schemes. For instance, one has various strategies such as growth, value, themes etc. 

IT Sector mutual funds focus on companies in the Information Technology space. However, curated stock portfolios may invest in green energy, digital inclusion, electric mobility etc. One has strategies such as defensive investments, low volatility etc., offered through curated stock portfolios. 

Are curated stock portfolios better than mutual funds?

One can focus on curated stock portfolios if they have higher risk tolerance. However, first-timers may stick with equity funds which are safer than curated stock portfolios. If one does not have the expertise to invest in stocks, one must stick with equity funds. 

CSPs have several weaknesses which make them unsuitable for first-timers in equity markets. Curated stock portfolios may not disclose the methodology for determining returns. Moreover, some CSPs do not reveal their product launch dates. 

Many CSPs do not have a defined period for which return calculations are put out. For example, SEBI has prescribed a set of norms for reporting returns across specific periods for mutual funds. 

Managed equity is an excellent way to obtain diversification and expertise for investors. However, first-timers must stick with equity funds, or they may land up with a product that doesn’t match their risk tolerance. In a nutshell, curated stock portfolios are suitable for market-savvy investors to attain their financial goals.

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@clear.in