You can choose the stocks you want to buy for your portfolio and you can also sell them whenever you want

Fundamental analysis is best left to professional analysts. An analyst tracking, say, the automobile sector, forecasts cash flows of each company in the sector and determines its stock value. You and I cannot replicate this work as individual investors, as we cannot have in-depth understanding of all companies across sectors if we were to create a multi-sector portfolio. Professional money managers use analyst reports to create portfolios. That means it is optimal to invest in mutual funds if you prefer active products. Yet, many individuals prefer to buy individual stocks through systematic investment plans (SIP). In this article, we discuss a behavioural reason that can explain this preference.

One argument in favour of buying individual stocks instead of mutual funds is that you can choose the stocks you want to buy for your portfolio. An extension of this argument is that you can also sell the stocks whenever you want. But this argument suffers from illusion of control. Why? Whether you buy individual stocks or units in a mutual fund, you can sell your investments whenever you want to. As for the argument about picking stocks, the idea of investing in a mutual fund is that the professional money managers understand the market much better than us.

But what if you have ideological differences with a fund’s investment philosophy? Suppose you do not want to take exposure to companies that manufacture tobacco and alcohol. Or your religious practices do not allow you to invest in certain types of companies, say, banks. You can select funds that fit with your ideologies. ESG-focused funds and Shariah funds, for instance. The point is that there are funds today that meet most of your requirements. While choosing active funds is not easy, neither is selecting individual stocks to invest for your goal-based investments.

The urge to own individual stocks may be difficult to overcome. This behaviour is like the desire to own physical gold instead of financial gold. One way to moderate this desire is to yield to temptation. Select a few stocks that you want to buy and invest only a modest amount in them. This should preferably be a one-time investment, not an SIP. Your SIPs for your goal-based investments must be primarily in ETFs or in active funds. What if you already have several SIPs on individual stocks? You may have to gradually shift your SIPs to ETFs or mutual funds of your choice.

(The author offers training programmes for individuals to manage their personal investments)

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Published on April 12, 2026