If you're not comfortable with taking on high levels of risk or don't have time to do the necessary research, investing directly in the stock market may not be the best choice for you. Equity mutual funds offer ways to benefit from market-linked returns without the high risk.
Even if you're not interested in investing directly in the stock market, equity mutual funds can still provide market-linked investments. Here are three ways these funds can help grow your savings and create wealth over the long term:
Compounding means reinvesting your investment earnings to generate additional returns. Equity mutual funds with a growth plan do this automatically, reinvesting profits in the scheme. Over time, you can earn interest/returns on your previous gains, resulting in significant growth.
Despite short-term market volatility, equity investments have historically provided notable returns over the long term. By staying invested in equity funds for more than five years, you can take advantage of this and even out the effects of volatility.
According to the Income Tax Act, 1961, long-term capital gains on equity mutual funds (i.e. profits realized after a holding period of at least 12 months) are exempt from taxes up to Rs. 1 lakh per financial year. You can plan to redeem your mutual funds accordingly to earn tax benefits in the process.
If you want to enjoy the benefits of equity mutual funds, it is never too late to add them to your portfolio. If you are unsure about how to start finding the best equity mutual funds for your portfolio, start with Fi. Mutual Fund investments on Fi are commission-free. With its intuitive user interface, suited for novice & seasoned investors, you can select from over 900 direct Mutual Funds. Plus, Fi's 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor. To help simplify the steps involved, you can invest daily, weekly, or monthly via automatic payments or SIPs — created with one screen tap. Moreover, Fi offers 100% flexibility with zero penalties for missed payments.
Equity mutual funds pool money from investors to invest in a portfolio of mostly stocks, with some debt securities and other money market instruments. Direct stock market investments involve buying stocks of companies directly.
Unlike traditional savings accounts, equity mutual funds offer the advantage of market-linked returns. This increases the possibility of creating wealth over the long term.
Equity mutual funds are managed by experienced managers who make key investment decisions, including which companies to invest in and how much to invest. Some funds have lower risk, making them suitable for beginners and risk-averse investors.
Equity mutual funds include large, mid, and small-cap funds, multi-cap funds, value funds, dividend funds, and thematic funds. Choose the best funds based on your financial goals and desired returns.
Equity mutual funds spread risk by investing in multiple companies and offer diversification benefits due to their focus on market-linked equity assets, which have the potential for long-term growth.