If you are investing your hard earned money by making some sacrifices now, you are doing so, so that in the near future you are able to improve your existing financial condition. People want to create wealth but aren’t ready to commit to a disciplined investment approach. It is possible to achieve a noticeable corpus if you choose the right type of investment scheme whose investment objective, risk profile, and investment time horizon aligns with that of yours.
One of the simplest ways to create long term wealth is by investing in market linked schemes like equity mutual funds. Equity mutual funds have the potential to generate far better returns as they predominantly invest in the equity market. Some claim equity funds to be a risky investment, but they are far less volatile than direct stock market investments as equity mutual funds invest in a diversified portfolio of stocks and invest in securities spread across market capitalizations.
Let us find out more about equity mutual funds and understand the five primary benefits of investing in them.
What is an equity mutual fund scheme?
An equity mutual fund is an open ended mutual fund scheme that invests the majority of its investible corpus in equity and equity related instruments of publicly listed companies. As per market regulator SEBI guidelines, an equity mutual fund invest a minimum of 65% to 80% of its total assets in stocks and other equity related instruments. These funds may carry high investment risk, but also have the potential to generate returns like no other mutual fund scheme.
Five primary benefits of investing in equity mutual funds
Diversification and risk mitigation
If you had to take exposure to the equity market through stocks, you would have to invest thousands of rupees to buy single quality stock. Plus there would be concentration risk as you would end up losing your invested sum in case the stock value goes down. In the case of equity mutual funds, they invest in a basket of such credible stocks that have growth potential. So even if one stock collapses, the overall equity mutual fund portfolio should be able to reduce risk and create stable returns. Through a single equity mutual fund investment, you get exposure to several expensive stocks.
Equity mutual funds are managed by a team of professional fund managers who ensure that they maintain a portfolio that keeps generating decent returns. Hence, even if you do not have a deeper knowledge about equity funds, you can still invest and let the fund managers handle the portfolio and help you generate returns.
Avail tax benefit
Equity Linked Savings Scheme (ELSS) is an equity mutual fund scheme that comes with a tax benefit. You can invest up to Rs 1.5 Lacs in ELSS every fiscal year and bring down your tax liability.
Systematic Investment Plan
Investors can invest an amount as low as Rs 500 every month in equity funds through a Systematic Investment Plan. SIP is a simple and convenient way to save and invest a fixed sum at regular intervals. Investors can create long term wealth through systematic and regular SIP investments.
Equity mutual funds are well regulated and under the governance of SEBI (Securities and Exchange Board of India). Investors do not have to worry about getting cheated as all equity funds must be transparent with their investors as per the norms set by SEBI.