Direct Vs Indirect Investing
There are many options or avenues for an individual to invest as briefly explained at the beginning of this chapter. The choice should be based on knowledge, expert advice, availability of the opportunity to invest and several other factors. The objective of this course is to try and help people make an informed decision.
At a high level we can differentiate between two types of investments: direct investment and indirect investment.
A direct investment is one where the investor directly makes the investment decision and assumes entire responsibility for the result of the investment which may be profitable or may result in losses.
In the case of indirect investment the investor takes the help of an advisor working in a bank or uses instruments like a mutual fund to take advantage of the investment knowledge of the bank or the financial institution to make a good investment. In this case also the investor is the beneficiary of the profits or losses. The people or institutions that offer investment advisory take their respective professional charges for their services rendered and don’t take the responsibility for the profit or loss resulting from the investments.