Finance

WHAT IS EQUITY MUTUAL FUND AND ITS BENEFITS

Investment preferences of retail customers have evolved since the origin of mutual funds. There are different categories and types of mutual funds regularized by the Securities and Exchange Board of India (SEBI). One such category is equity mutual funds. In this article, we’ll explore equity funds and their benefits. Let’s start with the basics.

What is equity fund?

An equity fund, also known as stock funds is a category of mutual fund that invests primarily in stocks or shares of the company. According to the current SEBI Mutual Funds Regulations, an equity scheme must invest at least 65% of their assets in equities and equities related securities. Equity funds can be actively or passively managed. They are predominantly categorized as per the company size, the investment style of the holdings in the portfolio and geography.

Top reasons why you should invest in equity mutual fund schemes

There are several benefits of investing in equity mutual funds. Some of these are:

  1. Higher returns – Equity funds are popularly known for accruing higher and better returns than debt funds. History is proof that investments in equities have delivered inflation-beating returns.
  2. Tax benefits – The Equity Linked Savings Scheme, also known as ELSS equity funds offer tax exemption of up to Rs1.5 Lakhs u/s Income Tax Act,1961. These funds are rightly known as tax saving mutual funds. Individuals can save up to Rs46,800 by investing in these mutual funds. You are also offered the option to invest in ELSS funds in instalments.
  3. Diversifies portfolio – To limit the intensity of risks, equity fund investments are exposed to varied sectors across capitalization. Investing in a diversified portfolio works in your favour as if the markets are bearish, even if some of the stocks in your portfolio underperform, the stocks outperforming can make up for losses.
  4. Convenient – As an investor, you can invest in mutual funds online either via SIP method or lumpsum method. This makes the entire investment process quite convenient.
  5. Liquidity – It is quite easy to redeem units of your mutual funds when in need. The corpus gets credited to your bank account within a week making them liquid assets.
  6. Professional management – All mutual fund investments and schemes are closely monitored by a mutual fund expert known as the fund manager who has enough knowledge and expertise about the functioning and the know-hows of the markets. A fund manager undergoes serious analysis and also makes crucial decisions regarding the asset placement to meet the goals of a particular scheme.

Always make sure to align your mutual fund investments with your personal and financial goals so that you are motivated to stay invested even during a downturn in the markets. Also, be mindful about your investment tenure and risk appetite. Seek the advice and services of an expert if you unsure about your investments. Happy investing!

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