Invest in actively managed scheme than mimicking fund managers!

A fund manager buys a stock on certain risk & return parameters and has the discipline to diversify over a larger pool of stocks. Retail investor does not understand those parameters, nor can he/she diversify across 50-60 stocks. The fund manager has exit strategy for high-risk bets and the diversification helps even if he gets a few calls wrong. Investors may also be looking for quick returns and holding a stock for a shorter period compared to the fund manager. This mismatch may cost the investor a lot, as he may end up selling the stock whereas the fund manager is accumulating it slowly. Since no fund manager announces for how long he is going to hold a stock, it is difficult for an investor to commit money. Often, large-scale selling by a fund manager may pull the stock price down. By the time the portfolios are disclosed, and retail investors come to know about the exit, the stock price may have plummeted. When a fund manager buys and sells stocks, he does not have to pay tax on gains. An investor, however, has to pay taxes each time s/he books profits. An investor will also need to keep tabs on transaction costs, as well. Hence, it makes sense to invest in an actively managed scheme rather than mimic the manager of the scheme.