Before we get into the benefits of Equity Mutual Funds, let’s look at why you should invest in the first place. Investments are crucial because they assist you in achieving financial stability, financial independence, and objectives. Equity mutual funds may be a valuable asset type to have in your investment strategy. They not only provide larger returns but also diversify your portfolio.
Equity mutual funds are a form of fund that pools money from investors and invests it in the equities of various firms. The performance of this fund is determined by the gains or losses resulting from the rise or fall in the prices of these stocks. To build a successful investment portfolio, you’ll need enough knowledge, risk-taking capacity, and patience to invest in the stock market.
Let’s look at the advantages of investing in equity mutual funds.
Systematic Investment
Equity funds provide the ease of investing using Systematic Investment Plans (SIPs). Investors can start a SIP for as little as Rs. 100 and invest in predetermined mutual fund schemes daily, weekly, monthly, or quarterly.
Because the investments are made regularly, regardless of market fluctuations, this instills a feeling of financial discipline. Similarly, once the targeted investment corpus is attained, investors can register for an SWP (Systematic Withdrawal Plan) to transfer their investments monthly to meet their regular cash flow needs.
Easy Liquidity
One of the primary advantages of stock market investment is the ability to purchase and sell equities as needed. When you invest in an equity mutual fund, you have simple liquidity. For example, in open-ended equity mutual fund schemes, you can redeem your shares at any time, anytime you need money. In the event of a matured SIP, the entire procedure takes about a week to complete; an investor can get cash in 3 to 4 working days.
Tax Benefits
Investments in certain types of equity funds, such as Equity Linked Savings Schemes (ELSS), are eligible for a tax credit under Section 80C of the Income Tax Act. For all qualified payments/investments calculated in aggregate, a deduction of up to Rs. 1.50 lakhs can be claimed in a financial year.
ELSS Funds have a 3-year lock-in term from the date of investment and could be redeemed at the investor’s discretion after the lock-in period expires. As a result, investors may relate their ELSS investments to their long-term financial objectives.
Various Goals
There are numerous different types of equity mutual fund plans to suit various investing objectives. Mutual fund investments have no upper limit, and you may start with as little as Rs 500. There are many different types of schemes available to invest in, depending on your risk tolerance and the urgency of your objectives.
For instance, if you are a high-risk taker looking for higher returns on your investments, you can invest in mid-cap or low-cap funds, which invest in small, growing companies. Even you can invest in sector funds, which invest in companies from a specific industry such as real estate, FMCG, or pharmaceuticals.
Portfolio Diversification
Investing in an equity mutual fund spreads your money over many stocks, reducing the chance of future losses and, in short, diversifying your portfolio. As a result, if one stock underperforms on the exchange, the outperforming ones can compensate for the loss, lowering the overall loss and market risk in the portfolio.
Even if you start a monthly SIP of Rs 500, these mutual funds can assist you in having a modest quantity of so many stocks from diverse firms in your portfolio, balancing your total investments.
Final Thoughts
Equity funds are highly volatile and dangerous since they invest in equities. As a result, they are suited for investors with a high-risk tolerance and are willing to commit to a long-term investment horizon of at least 7 to 10 years. Equity funds tend to create substantial returns over a long investment horizon. The investor’s risk appetite and investment horizon will influence their selection of which equity funds to invest in.