What is equity fund?
An equity fund aims to generate high returns by investing in the shares of companies of different market capitalization. They help in generating high returns than debt funds or fixed deposits. The company’s performance results in profit or loss and decides on how much will an investor make based on their shareholdings. After an investor understands what is equity mutual fund, they will be able to better understand the mutual funds. Equity funds invest in 60% or more of the assets in equity shares of companies in varying proportions. The investing style may be value-oriented or growth-oriented. After allocating a major portion of equity shares, the remaining amount goes to debt and money market instruments.
The 5 benefits of equity mutual funds are:
- Professional management:
An asset management company will set the investment objectives for schemes and appoint experienced and expert professionals for investing the investor’s money in equity. A fund manager will spend quality time learning about the past and researching about the future performance of the companies they invest their money in. An expert professional will be able to provide their expertise and advice the investors on an equity fund.
- Portfolio diversification:
When an investor goes for mutual funds, they get an exposure to different stocks when they are invested in equity mutual fund schemes. Even a small investment in a mutual fund scheme will allow the investors to make a diversified portfolio. Portfolio diversification will help the investor reduce risk that means the investor is less likely to lose money on investments. Compared to direct investments in stocks, equity mutual funds are affordable yet diversified models of investing.
- Liquidity:
Equity mutual funds are liquid. They will offer an opportunity for redeeming your investments at any time. It means they can redeem all their investments in the time of need or at a Net Asset Value (NAV) higher than NAV at the time of purchase. You can even invest more in equity mutual fund schemes during the market fall to buy units at lower NAV. The freedom of investing and redeeming will give better control over the investments.
- Systematic/regular investments:
Equity mutual fund schemes has provided the investors with a facility to invest small sums at regular intervals through systematic investment planning (SIP). SIPs make it easy for investors who have just begun to invest in equity mutual fund schemes. These sums are used by the investor to buy stocks. This will help the investor develop a regular habit of investing that will be useful in long term wealth creation.
- Tax benefits:
If an investment period in equity mutual funds scheme is more than a year the capital gain is exempted from tax liabilities. An investor can invest in ELSS and deduct from the investor’s taxable income to effectively reduce tax liability.
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