An equity fund can be an excellent way to begin your investment journey in the stock market. Read this article to learn the benefits of investing in equity mutual funds.
Rising inflation and diminishing returns from traditional investment avenues have made investors look for various new investment options. As a result, equity mutual funds have rapidly gained popularity due to the multiple benefits they offer to investors.
What is an Equity Fund?
An equity fund is a type of mutual fund category that invests primarily in equities and equity-related instruments. As per the SEBI rules, an equity mutual fund in India must allocate at least 65% of its assets toward equities and equity-related instruments. Equity mutual funds can be divided into many categories based on their investment objectives. Some popular categories of equity funds are as follows.
- Large-cap Funds
- Mid-cap Funds
- Small-cap Funds
- Multi-cap Funds
Six Reasons to Invest in Equity Funds
1. Portfolio Diversification
Equity funds allow you to spread your investments across different sectors. Additionally, equity mutual funds allow you to invest in a range of assets such as stocks, bonds, commodities, and real estate, further diversifying your portfolio.
This is also an effective way to spread your risk, as you will invest across various equities and asset classes. As a result, your portfolio is unlikely to bear the full heat if one of the asset classes underperforms, as other investments can potentially mitigate the impact.
2. Professional Fund Management
Many individuals may find it hard to identify the right time and the stock to invest in. Secondly, you may not have enough time to monitor the market and predict the market behaviour.
However, equity mutual funds are managed by experienced investment professionals with in-depth knowledge and expertise in equities and the market in general. They routinely conduct extensive research and analysis of stock performances and market trends. These investment professionals ensure that your money is invested optimally through their mutual funds.
3. High Liquidity
Apart from ELSS and a few other specific category funds, open-ended equity mutual funds in India don’t have any mandatory holding period. So, investors can easily sell their fund units on any business day. Upon redemption, the redemption amount is credited to the investors’ account within a few days. Therefore, you can use your mutual fund investments to arrange cash in time of need.
However, if you exit the fund too soon, there might be an exit load. The scheme document mentions the lock-in period, which can range between a few days to a few months.
All mutual funds in India must adhere to the stringent regulations of the Securities and Exchange Board of India (SEBI), India’s capital markets regulator. This ensures that utmost transparency is maintained while handling the investor’s money.
5. Start Small
Many people can’t afford to purchase all the individual securities a mutual fund holds. However, you can easily purchase equity fund units in small amounts. The minimum initial investment in most equity funds can begin from as low as ₹500-₹1000. So you can start accumulating fund units in small quantities to build a robust portfolio over time.
You can also invest in an equity fund through Systematic Investment Plan (SIP). SIP enables you to invest a fixed amount in your chosen fund at regular intervals like monthly, quarterly, etc., instead of investing a large amount at once.
6. Potential for Wealth Creation
Like all market-linked investments, equity mutual funds can carry a certain level of risk. However, they also have a strong potential to generate inflation-beating returns if you can stay invested for a long period, like seven years or more. Therefore, equity mutual funds can be an excellent option to create a good investment corpus for your future or fulfilling long-term financial goals.
There are various types of mutual funds to suit the varied needs of investors. So, set your investment goals, identify your risk-taking ability, and select the right equity fund to begin your investment journey without any further delay.
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