Benefits of Investing in Equity Mutual Funds

Equity funds invest in shares of companies with different sectors &market cap, thereby helping you generate higher returns in comparison to other mutual fund types. Read below about the benefits of investing in equity mutual funds if you’re a new investor in the market.

authored article contributed by Mr. Abhinav Angirish- Founder, InvestOnline.in

Benefits of Investing in Equity Mutual Funds

If you are looking to invest in the share market, then you can do so either by buying and selling stock by yourself or through mutual funds.  Investing in mutual funds can be a smart move for any investor to grow his wealth. Especially, when it comes to investing in equity funds. If invested for long-run, equity mutual funds offer you an average return of 15% which is generally higher than any other investment scheme. Though equity funds offer high returns, they are considered risky due to the constant fluctuation of the market. But as an investor, if you pick the right scheme and invest for the long run, then you can get good returns as well as tax benefits. Equity mutual fund schemes are managed by qualified and experienced personnel.

 

Read below about the benefits of investing in equity mutual funds

 

Professional management

 

If you are scared of making an investment in mutual fund due to lack of knowledge, expertise and experience, then it is important for you to understand that mutual funds are managed by experienced and professional fund managers who on your behalf invest in equities. Asset management companies (AMCs) work in a professional environment, wherein the fund managers are involved in the research and analysis work of various companies.

 

Portfolio Diversification

 

Investing in mutual funds helps you diversify your investment portfolio. Investments as small as Rs. 500/- can be made in mutual funds to achieve diversification. Having a diversified investment portfolio helps you reduce risk as well as create wealth. In comparison to direct investment in stocks, investing through mutual funds is a wise idea. If the price of the one stock drops at the exchange, the other stock can help you make up for the loss. Also, investment made in ELSS funds helps you achieve tax benefits as well as high returns.

 

Capital appreciation

 

One of the primary benefits of investing in equity funds is allows for capital appreciation. As the company grows and makes profit, it chooses to reinvest the profit made to grow through the product development, market share, etc. Hence, with the increasing growth of the company, the stock price of the company grows leading to capital appreciation.

 

Liquidity

 

When investing in equity mutual funds, it is important to understand that they are highly liquidable. This means that an investor can opt to redeem the investment at any point. However, this is valid to every mutual fund scheme except for ELSS schemes that comes with a lock-in period of 3 years. If you are in dire need of money or the current Net Asset Value is at an all time high then you can opt to redeem your investment. Investing in mutual funds at the time of low market is a good idea as it allows you to buy more units at lower NAV and also gives good returns in the long run. This benefit of investing and redeeming gives you good control over your investments.

 

Regular investing

 

Mutual fund schemes allow you to make an investment through the way of systematic investment plans (SIP). SIP makes it simple for you to invest in equity mutual funds on a monthly basis. With an SIP, an investor can make an investment as low as Rs. 500. Investing through SIP offers you the benefit of compounding returns and rupee-cost averaging. SIP also develops the habit of regularly investing which is important for long-term wealth creation.

 

Tax benefits

 

You can enjoy tax benefits with mutual funds if investing in ELSS. Equity linked saving schemes come with a lock-in period of 3 years and provide tax benefit under section 80C of the Income Tax Act, 1961. Also investment made in any mutual fund for more than one year also provides exemption from capital gains tax.