October 29, 2020

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Why Equity Mutual Funds Can be a Better Investment Option

Before investing in any type of mutual fund scheme investor should always determine the risk appetite. That’s because mutual funds are a pool of professionally managed funds that invest in volatile markets. Apart from equity these funds also invest in money market instruments and fixed income securities like commercial papers, debentures, company fixed deposits, government securities, corporate bonds etc. If you have decided to invest in mutual funds, you should always diversify your portfolio by investing in a mix of equity and debt assets. What a fund house does is that it collects money from investors sharing a common investment objective and invests this pool of funds across the Indian foreign economy. The performance of a mutual fund highly depends on the performance of an underlying asset and the industries and sectors in which it invests in.

Market regulator SEBI has further categorised Mutual Funds so that informed investors are able to take an informed investment decision. This categorisation has been done on the basis of certain unique attributes that the scheme carries such as its investment objective, investment strategy fund size, and risk profile and asset allocation. Some of the major mutual fund categories include equity funds, debt funds, solution oriented funds, hybrid or balanced funds, exchange traded funds (ETFs), index funds gold funds, etc.

What are equity mutual funds?

Equity mutual funds are those mutual funds that invest in stocks and other equity related instruments. An equity mutual fund invests a minimum of 80% of its total assets in equity and equity related instruments. The remaining 20% is allocated to other market securities depending on the nature of the scheme and the risk profile that it carries. Equity Mutual Funds have been one of the primary investment choices for investors among other mutual fund schemes. Although investments in these funds attract high volatility, they are also known to offer capital appreciation over the long term which is far better than traditional investment avenues.

Why should one consider investing in equity mutual funds?

Before determining why one should invest in equity mutual funds, investors should also determine their risk appetite before making investment in these mutual fund schemes. Knowing one’s risk appetite can help an individual understand whether he or she can take a certain amount of risk and invest in highly volatile mutual fund schemes like equity funds. If you are someone who carries a high risk appetite and wondering how equity funds can help your portfolio receive the aggressive touch that it deserves, here are a few reasons to invest in equity mutual funds:

Ideal for long term goals

Every investor has short term and long term goals which they wish to achieve at some point of time in future. While short-term goals can be achieved over a span of 2 to 3 years, long-term financial goals like retirement planning or building a corpus for your daughter’s destination wedding for accumulating well so you can buy a weekend home requires an investment horizon of at least 20 years. Equity funds are known to perform over the long-term and if one remains invested in these funds they can achieve life’s long-term financial goals.

You can invest in equity funds via SIP

Systematic investment plan for SIP is a modern way to invest in equity funds. Investors can invest small investment amounts at regular intervals as long as the small investment amount matches the minimum investment required mentioned in the offer document. All you have to do is inform your bank following which every month on a fixed date a predetermined amount is debited from your savings account, another trying transferred to the fund. Systematic investment plans can not only help one remain invested in an equity fund for the long run, but it may also inculcate the discipline of savings.

Investment in equity funds do not guarantee returns as investors are expected to consult a financial advisor before making an investment decision.