An equity fund is a mutual fund that is invested principally in stocks. Equity funds are also known as stock funds. Stock mutual funds are categorized according to company size, the investment style of the holdings in the portfolio, and geography. Investors who are willing to invest in long-term capital growth can invest in Equity Mutual Funds. The Equity Mutual Funds are handled either actively or passively by fund managers so the risk and return vary from scheme to scheme. Few reasons why should one invest in an equity mutual fund-
1) Easy on the pocket
Anyone from anywhere can invest in equity mutual funds through SIP mode. One can start investing with just Rs 500 a month, A SIP allows regular periodic investments through ECS (Electronic Clearing Service) process where money gets automatically deducted from your bank account every month at a predetermined date. Investors who want to invest but can’t do can also start with less amount of money. There are plenty of opportunities for small investors who want to invest.
2) Capital Appreciation
Every investor who invests in Equity Mutual Fund gets the primary benefit of capital appreciation. Another benefit is that it can give you high inflation-beating returns. It would reflect appreciation in the invested money if there is an increase in the stock prices. One can accumulate a good amount of wealth over a period of time. It is a good opportunity for small investors.
3) Portfolio Diversification
When you invest money in mutual funds, it spreads into various sectors which reduces the risk of losses in the future. If any sector underperforms or not able to give the expected result other sectors can make up for the losses of that sector which minimizes the market risk in your overall portfolio. However, it is impossible to escape from all risks even after having a diversified portfolio.
4) Financial Goal-Oriented Funds
If an investor wants to invest his funds for a longer-term then equity mutual funds are the best option to achieve your goal. These funds are categorized into small-cap, mid-cap, large-cap and accordingly, the returns vary from fund to fund. Investing money in funds means willing to take risks, the higher the risk, the more will be the chances of getting higher returns and achieving your target amount.
5) Tax Planning Option
Investors who invest their money in equity mutual funds through ELSS(Equity Linked Saving Scheme) funds can get tax benefits. The investor has to invest a lump sum for 3 years lock-in-period can help you to get a tax deduction in the current financial year up to Rs 1.50 lakh under section 80C of the Income Tax Act 1961. This scheme has a minimum locking period as compared to other schemes like FD’S, PPF, NPS, etc. They also tend to give much higher returns when compared to other tax-saving financial instruments. However, the returns are market-linked and not guaranteed.
6) Tax-Free returns
When your investment holding period exceeds twelve months, the returns you get from the funds become tax-free. However, if redeemed before a year, the short-term capital gain tax is applied at the rate of 15% which may reduce your appreciated capital to a much higher level and your actual returns may become negative. So, it is always advisable to invest in a long-term horizon so that the chances of higher return increases and also get tax free once redeemed.
7) Professionally Managed
Investors who invest their money in mutual funds generally get worried about the returns and review the performance on daily basis, investors who invest in equity mutual funds need not worry because the schemes are managed professionally by fund managers. For investors who don’t have much knowledge about the financial market, equity mutual fund is the best option for them. All the schemes are managed professionally by fund managers.
8) Easy to Liquidate
The benefit of investing in equity mutual funds is that it can be redeemed at any point in time. It is easy to get back your corpus into your bank accounts. Whenever you need money, you can stop your SIP and redeem the number of free or all the units you want. The whole process takes around about a week but if your SIP is already matured, you can get your money back in three days.
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