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Everything You Want To Know About Equity Mutual Funds
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With a plethora of investment options available in the Indian market, mutual funds are the safest bet. The most appealing aspect of this option is it offers best returns and limits the losses. It does not burn your hard-earned money owing to market conditions and the performance of the company. For those who have opted to invest for the first time and excited to invest in mutual funds, they should put their money in equity-based funds.
What is an equity fund? Such funds invest its assets in equities which are listed in stock market securities. Equity funds have become a popular concept in India in recent times. As per the Association of Mutual Funds in India (AMFI) report, more than INR 8 lakh crore were invested in equity funds by December 2018.
What is equity mutual fund can further be defined as those funds which require to invest at least 65 per cent of its assets in equities and equity-related instruments. The balance can be invested in debt instruments.
Benefits of investing in equity funds:
• Offers a diverse portfolio: Equity funds provide broad diversification. You have to make a minimal investment initially. For this, you have to buy stocks from different companies at a different time in various sectors. The process is useful when a stock falls the other stocks can make up for the loss
• Capital appreciation: One of the primary benefits of equity fund investment is capital appreciation. Once the company earns profit and grows, they choose to reinvest the earnings to maximise the opportunity in the ongoing market share, product development, etc. As the company grows, the stock price also increases. This leads to capital appreciation.
• Dividend: Investors receive regular income through dividends when they invest in blue-chip companies. Such companies pay dividends every quarter in good and bad economic conditions. If you have a diverse portfolio, you are ensured to receive steady income throughout the year. Every company follows a different cycle. However, you are guaranteed to receive a cheque every month.
• Liquidity: Stocks are traded in exchanges every day. This makes it a highly liquid investment. It also means that you can sell the stocks whenever you want. Stocks liquidity are different than the savings in your account and much more than real estate. Investors receive money from the stock sale within a week.
• No commission: Most of the fund houses have plenty of charges in place such as bank fees, commission, brokerage, etc. These are the profits that fund managers earn. The more the investment, the less you get. One of the most significant benefits of equity funds is fund houses do not charge brokerage fees. This is one of the major reasons why equity funds are in demand.
• Professional management: Investments are generally surrounded by a degree of uncertainty. Investors are scared to invest a lack of knowledge, time, self-discipline, and experience of investing. Mutual funds are not surrounded by any such concerns as they hire professional expertise which appeases the investor's stress.
Some of the popular types of equity funds in the market are large-cap, small-cap, multi-cap, and the famous tax-saving instrument ELSS. Small-cap funds are considered by almost 95 per cent of companies in India. Such funds are highly volatile and provide higher returns. The best small-cap mutual funds in India are Reliance, HDFC, Aditya Birla Sun Life, Mirae Asset, and Franklin India.
Swarali Chavan is a finance professor who loves study about market investment instruments. She has written on what is equity fund. Through this article, she has explained the concept and mutual funds benefits
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