10 Reasons Why You Must Invest in Equity Funds
Despite the risks associated with mutual funds, they are a popular financial instrument among investors. If you aim to invest in mutual funds in India, you have multiple types of funds to choose from, and equity funds are one of them. The pooled assets in equity funds are invested in multiple stocks. Explore the benefits of equity funds to determine why they are a good investment choice.
High Capital Appreciation
Before picking the right type of mutual fund, consider the growth you need. The capital appreciation rate in equity funds is quite high. Therefore, you will get high returns from equity funds.
Equity funds allow you to invest in multiple stocks in different sectors. You can also choose other asset classes, like fixed-income securities, to invest in. The diverse allocation of funds reduces risks and helps you earn benefits from different sectors.
If you invest in equity funds, you will get dedicated fund managers to look after them. They will assess the stocks and market conditions to generate higher returns than the benchmark indices. The fund managers will help deliver optimum returns to investors who don’t have the time or skill to predict stock performance and time the market.
Diversification can help spread the risks associated with investments. If one stock or sector is underperforming, you will get better returns from another. Since you won’t be dependent on one stock or industry, your overall loss will be lower.
Equity investments help you become a shareholder in different companies by making small investments without a high capital requirement. Therefore, equity funds are extremely affordable for investors. Besides, you can invest in equity funds in a lump sum and SIPs. If you invest via SIPs, you can make monthly payments of as low as Rs. 500.
You can enjoy tax exemptions of up to Rs 1 lakh for long-term gains on equity funds. If the capital gains exceed the given amount, you will be taxed at only 10%. If tax-saving is your ultimate goal, you should invest in ELSS funds. ELSS funds over tax exemption of up to Rs 1.5 lakh with a three-year lock-in period.
Equity fund assets are invested in stocks traded on the market. The purchase and sale make the funds liquid in nature. Additionally, investors can redeem the equity fund units whenever they want to.
Putting your money in unregulated or non-transparent financial instruments can be tricky. But equity funds are regulated by SEBI. All AMCs in India need to follow the rules laid down by SEBI regarding the functioning of mutual funds.
Power of Compounding
Compounding power applies to investors who opt for a growth plan. The profits earned by the investors are not paid out but get invested in purchasing more units. It helps enhance your invested capital and make you earn interest on the previously accumulated interest. Therefore, equity funds allow investors to gain huge capital in the long run.
- Dividend Income
If you opt for a dividend plan, you will receive monthly, quarterly, annual, or bi-annual income. The dividend refers to the cumulative profit of all stocks in the fund. The profits earned from an equity fund get divided among all investors according to their unit holding after deducting all the applicable charges.
After reading about the benefits of equity funds, you will realize that they are a wise investment choice. Start looking for the best equity funds and speak to a financial advisor to make your investment.
- Are equity funds risky?
Equity funds are risky, but portfolio diversification can minimize the risk quotient.
- Can I invest in equity funds via SIP?
Yes, you can make equity investments via SIP.
- What is the minimum equity investment amount for SIP?
If you invest via SIP, you must make a minimum monthly payment of Rs. 500 toward your equity fund.
- What are the various types of equity funds?
In the market, you will come across large-cap, mid-cap, small-cap, and multi-cap equity funds.
- What is the ideal time horizon for equity investments?
Due to high volatility, the best time horizon for equity investment ranges from 3 years to 10 years or more.
Disclaimer– Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.