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The 7 Benefits of Investing in Equity Funds Explained

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Created on
August 3, 2022

Summary

What’s Inside

The benefits of investing in equity mutual funds are vast. After all, most people invest in drawing greater returns on their respective principal amounts. While mutual funds are tethered to market risks, they can bring in adequate returns since professionals manage them. 

Continue reading to understand what the benefits of diversified equity mutual funds are.

Exploring the Merits of Equity Funds

1. Easy Investments 

Investing in equity funds offers convenience compared to buying individual stocks. With an equity fund, you can own a diversified portfolio by investing in a single fund, eliminating the need for multiple stock trades. Unlike individual stock investments, you don't need a Demat account or a brokerage account as an equity fund investor; being KYC compliant is sufficient. You can invest in equity funds through a fund house or an intermediary, both of which have online platforms.

2. Investors Enjoy a Diversified Portfolio

 Fund managers invest in varied stocks, allowing investors 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.

3. Liquidity

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 ends. 

4. Lower Investment Sums Accepted

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. 

5. Professional Fund Management

Professional fund management by asset management companies (AMCs) offers advantages such as market expertise, risk mitigation measures, and identification of investment opportunities. AMCs have dedicated teams that conduct research and analysis to make informed investment decisions. They also set limits on risk parameters and monitor market developments for potential opportunities. 

6. Tax Efficient 

Investing in an Equity Linked Savings Scheme (ELSS) fund allows for tax deductions under Section 80C of the Income Tax Act. Investors can avail of deductions of up to ₹1.5 lakhs. For investors in the highest tax bracket, this translates to a maximum savings of ₹46,800 per year, considering a 30% tax rate plus a 4% education cess.

7. Well-Regulated

Mutual funds in India are well-regulated by SEBI, ensuring transparency and mitigating malpractices. SEBI mandates disclosure of portfolios and daily net asset values on fund websites. Expense ratios are also disclosed periodically. Equity fund managers adhere to SEBI and AMC rules, which are closely monitored for regulatory compliance. 

Final Thoughts

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 offers 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.

Final Destination To All Your Investment Solutions- Fi

Users can find several investment options on the Fi app. Be it short-term or long-term — it's easy to invest with a simple swipe of your phone's screen. Fi also offers a Peer-to-Peer investment feature called Jump! Jump can help you earn up to 9% p.a on your investment. But if you want to save up for a short-term goal & earn interest on it, select our super-flexible Smart Deposit. If you're looking for higher/stable returns, opt for a Fixed Deposit.

Frequently Asked Questions

1. What are the types of equity shares? 

Equity shares exist in the following forms.

  • Bonus shares 
  • Employee stock options
  • Ordinary shares
  • Preference shares
  • Right shares
  • Sweat equity 

2. Is equity the same as shares? 

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 company shares, if you own 10 shares, you have 10% equity or ownership of the company.

3. Is equity an asset? 

Equity becomes an asset when it provides value in the form of profits. Assets represent the company's value, and equity is the investment in exchange for ownership.

4. Are mutual funds equities?

Mutual funds are considered equity securities since investors buy shares that allow them an ownership stake in the fund.

5. What are the advantages and disadvantages of equity investment? 

Advantages of equity investment:
  • Potential for high returns
  • Ownership in companies
  • Diversification
  • Liquidity
Disadvantages of equity investment:
  • Volatility and risk
  • Lack of control
  • Time and knowledge requirements
  • Market uncertainty

6. Is equity share risky?

The value of equity shares can fluctuate significantly in response to market conditions, economic factors, and company performance. There is a potential risk of losing the invested capital in equity investments. However, with higher risk comes the potential for higher returns. Investors need to assess their risk tolerance and diversify their investments to manage the risk associated with equity shares.

Disclaimer

Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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