The benefits of investing in equity mutual funds are vast, owing to which it should come as no surprise that they have gained popularity in recent times. After all, most people invest to draw greater returns on their respective principal amounts. While mutual funds are tethered to market risks, since professionals manage them, they are able to bring in adequate returns.
Continue reading to understand what the benefits of diversified equity mutual funds are.
As the name suggests, equity funds invest majorly in equity assets like stocks of different companies. These companies are spread across various sectors and sizes. They are capable of generating higher returns compared to FDs and even debt funds. Equity-oriented mutual funds carry with them the following benefits.
Buying units of an equity fund is far easier than buying a number of stocks individually. This is because you need to only invest in a single equity fund that appeals to you to own a diversified portfolio. In contrast, you must conduct several trades in order to buy individual stocks such that you can acquire a similar portfolio.
An additional hurdle removed under equity funds is the requirement of a Demat account and a broker account. A demat account is a must if you wish to make individual stock investments. On the other hand, being an equity fund investor only requires you to be KYC compliant.
If you wish to invest in equity funds, you can do so via a fund house or an intermediary like an independent financial distributor. Each of these has an online presence as well.
Fund managers invest in varied stocks, allowing investors access to a diversified portfolio. This is most important as it allows investors to continue to acquire capital gains even if certain stocks within their portfolio underperform.
It is possible to redeem units of an equity fund at any point keeping in mind the net asset value. This allows investors to take advantage of a fund’s liquidity. However, the exception to this benefit relates to equity-linked saving scheme (ELSS) funds, where liquidations aren’t possible until the three-year lock-in period comes to a close.
If you don’t have access to a lump sum of money to invest in an equity fund, you always have the choice to opt for a systematic investment plan (or SIP). These plans allow you to invest in equity funds via instalments of amounts as small as ₹500.
Asset management companies own equity funds and are responsible for organising a fund management team. This team is composed of a fund manager along with several analysts. Together, they conduct research and analyse the markets to determine which stocks to invest in and which stocks to withdraw. This allows investors of these funds to sit back and reap the benefits. Another advantage worth noting here is that asset management companies tend to have a more comprehensive understanding of the industry and outlook than individual investors.
AMCs may choose to impose limits on a number of risk parameters ranging from volatility and stock liquidity to concentration risks. Individual investors navigating the markets on their own may not be able to adopt several risk mitigation factors with such ease or agility.
Finally, fund management teams are set up to scan and monitor developments at the micro-level relating to geopolitical, economic, asset class, sector, and stock level changes. This helps them pinpoint where potential opportunities lie in the future.
Should you invest in an equity-linked savings scheme (or ELSS) fund, you are entitled to avail of tax deductions. These deductions are applicable on up to ₹1.5 lakhs that have been invested in these funds as per Section 80 C of the Income Tax Act of 1961.
The maximum savings an investor would be able to draw therefore amounts to ₹46,800 each year if they meet the threshold amount. This figure has been reached keeping in mind the assumption that the investor falls under the highest income tax bracket. (This bracket incurs a 30 per cent plus education cess 4 per cent tax).
The Securities and Exchange Board of India (or SEBI) regulates all mutual funds in India. It mandates a certain degree of transparency in terms of what these funds are expected to disclose. Consequently, all funds must disclose their portfolios for the end of each month on their websites in addition to their daily net asset values. Periodic expense ratios are also expected to be disclosed.
Fund managers of all equity funds are expected to follow the rules set up by the regulator SEBI along with those set up by their AMCs. These rules are designed such that varied forms of malpractices can be mitigated. They are monitored with frequency and are well regulated.
With so many benefits of investing in equity mutual funds, they make a good choice for investors looking to generate high returns with equally high risk. The Fi app is here to offer you a wide range of equity funds to invest in just a few simple steps. Just remember, always consider your financial goals, the time frame you are willing to stay invested in a given security and the risks you are willing to expose yourself to before you take the plunge.
A1. Equity shares exist in the following forms.
A2. No, equity isn’t the same as shares. Equity refers to the ownership stake in a given entity or investment. On the other hand, shares refer to the extent to which ownership is proportional to a given individual in the aforementioned entity or investment. So, out of 100 shares of a company, if you own 10 shares, you have 10% equity or ownership of the company.
A3. Equity becomes an asset when it becomes something that provides value in the form of profits. Assets represent the value the company owns and equity is the investment provided in exchange for ownership.
A4. Mutual funds are viewed as equity securities since investors buy shares that allow them an ownership stake in the fund as a whole.
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