Equity mutual funds invest predominantly in the stocks of a company, as much as 65% of their corpus. These funds have quite the reputation for offering high returns, but which comes at the price of high risk. The hesitancies surrounding these funds exist due to misinformation and myths circulating in MF circles, both online and offline.
Equity funds are not ‘one-size-fits-all’ funds. There are various kinds of equity funds, each classified by their investment objective and mapped to the investor’s risk profile – small-cap, thematic, ELSS, etc.
Upon closer look, you’ll discover that equity funds are worth taking the risk after all. Look at some of the top benefits.
1. They offer high returns
Equity funds are also known as growth funds for a reason. Since their primary aim is capital appreciation, they are capable of generating high returns. However, this capital appreciation is directly dependent upon market fluctuations, making equity funds riskier than debt funds and other money market instruments. But, there’s a silver lining to it, addressed in the next point.
2. The risk can be mitigated
You put your capital at risk only if you invest in solely equity funds or if the investments are made for the short-term. Diversifying the risk by building a portfolio of part-equity, part-debt, and part-other money market instruments will help you weather market turbulences. This diversification is not limited to asset classes, but even under equity funds, you get diversification options – Large cap, multi cap, flexi cap, etc.
Also, equity fund investments work best for long-term investment goals such as retirement planning (where the investment horizon is usually 7 to 10 years at least).
Additional Read: Systematic Transfer Plan- Ideal way to Move to Equity
3. They go easy on your pockets
Not all investors have a huge lumpsum to invest. If you’re also one of them, you can easily start equity fund investing with Systematic Investment Plans or SIPs. With an amount as low as Rs. 500 per month, you can start your investment journey. Plus, owing to fractional investments, SIPs help beat the volatility of the equity market.
4. They offer tax advantages
If you’re wondering whether mutual funds offer tax benefits, the answer is yes, but these benefits are only offered under equity funds. Equity Linked Savings Scheme (ELSS) is a diversified breed of equity funds that makes you eligible for tax deductions up to Rs. 1.5 lakhs as prescribed under Section 80 C of the Income Tax Act.
However, ELSS funds come with a lock-in period of three years.
Additional Read: What is Equity Mutual Fund?
5. They are highly liquid
When it comes to the liquidity of equity funds, only ELSS is an exception (with its mandatory lock-in period of three years). Every other equity fund across sectors and market capitalisations is highly liquid. Meaning, you can purchase or sell its units on any business day at the applicable NAV of the fund.
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