Due to impressive gains over the past few years, the popularity of mutual fund investments has begun to rise. More and more people are familiarizing themselves with what is a mutual fund and the different types of mutual funds they can invest in. Among the many varieties, equity funds are considered to have a better growth potential to build wealth.
This article lists the benefits of investing in equity mutual fund investment plans. Firstly, let us begin by understanding equity funds.
What are equity funds?
Equity funds are mutual funds that invest predominantly in stocks. They aim to generate high returns by investing in shares of different companies with varying market capitalisation. When you compare equity funds v/s debt funds, equity funds are more volatile, but they are also known to fetch higher returns.
Benefits of investing in equity funds?
Following are the primary advantages of investing in equity funds:
- Diversification
Equity funds offer you numerous options to suit your investment goals and risk appetite. You can invest in either one or a combination of large-cap, mid-cap, small-cap and multi-cap funds. Doing so can ensure that the equity scheme of your choice is investing across sectors and asset classes, thus diversifying your portfolio.
- Professional management
Active portfolio management not only requires considerable time and skill but also sound investment knowledge. Professional fund managers manage equity mutual fund schemes with advice from expert market analysts. Besides, as an investor, you do not have to track the prospects on your own and can rely on professionals.
- Lower entry level
Since buying individual stocks can be expensive, equity mutual funds can make them affordable. For instance, you can initiate a Systematic Investment Plan (SIP) as low as Rs. 500. This can encourage steady investment. More importantly, SIPs reduce the risk of market timing and provides you with the opportunity of buying more number of units when the price has fallen.
- Capital appreciation
Traditional investments such as fixed deposits, recurring deposits, etc. offer little to no increase in returns after accounting for inflation. On the other hand, equity fund schemes could provide inflation-beating and market-beating returns. They have been historically proven to grow wealth over the medium to long term.
- Innovative plans
Fund houses offer resourceful schemes within mutual fund plans. For instance, you can benefit from systematic withdrawal plans, systematic investment plans, automatic reinvestment plans, asset allocation, triggers, etc. Plus, you may also have additional feature benefits such as switching from one fund to another, that stocks do not offer.
- Liquidity
To buy or redeem your mutual funds, in case of an open-ended scheme, you can buy/sell on given day’s Net Asset Value quickly.
Conclusion
To make a sound investment choice in mutual fund schemes, it can help to know your risk tolerance and investment horizon. Based on your financial goals, select the right funds that could help meet your objectives and grow wealth.
