How is Investing in Equity Mutual Funds Important?
Yes, it is very simple to give your money to the mutual fund house to let them invest in the equity stocks; it is important to know the nitty-gritty of buying an equity fund for your portfolio. There are some of the technicalities which make them a favourable investment plan, but whether they suit you completely is the matter to be considered.
In our earlier post, “Why Equity Mutual for the Long Term?”, we elaborated the concept of equities with deep analysis while specifying the reasons due to which they deliver long-term capital growth returns. Here we have made an attempt to make you grasp the importance of holding this fund in your portfolio. Check out the factors jotted down below.
Objective of Investing
Not all equity funds fit every investor. There are various schemes which fall in the equity asset class which is bifurcated as per investment objectives which must map your risk profile. Although the ultimate goal of every equity plan is appreciating capital, it is the risk taken to achieve the set goal which varies in every fund. Furthermore, the type of stock chosen to invest is also of prime importance. The schemes also have the classification on the basis of market capitalisation like large-cap, small- and mid-cap funds, etc., and across the sectors called the diversified equity plans.
Investment Style & Strategy
There are different strategies and styles that are adopted by the fund managers in order to design the equity investment plan for the investors. The styles and approach include top down, bottom up, value style, and growth style investment strategies. You must analyse the concept behind all of them and evaluate the schemes thoroughly to know about the suitability of such funds for your requirements.
Asset Allocation
This factor is the major determinant of the efficiency of the fund, and one must go through the vitalities of the same. Some of the schemes have high equity exposure, while the others have a proportionate investment in the debt instruments as well. Furthermore, the asset allotment also has a key role in the Income Tax Act, as if more than 65% of the funds are invested in the equity stocks, then one gains the tax benefit as well. There is no tax on dividend from such funds, and the long-term capital gains are also exempt from the purview of taxation.
These are some of the factors which make equity investment highly beneficial for the investors. However, it is a must to keep a regular check on the same so that one does not suffer the ill effects of any of the missed element.
Major Benefit of Equity Investments
The equity funds see short-term volatility but are often considered to be the most dependable asset class for the long-term goals. If we look at the rolling returns of the equity funds since 1997, we will analyse that the lowest seven-year returns have been 2% and that too for quite a short period. There has not been any case in the mutual fund industry in the past twenty years that an investor lost his/her money even after being invested for a period of seven years.
On comparing these funds with some other alternatives like FDs (Fixed Deposits), or Gold on a fiscal year basis, it has been enumerated that equities have delivered negative returns 33% of the times as compared to 24% in the case of gold, and 0% in the case of fixed deposits. However, the positive returns which have been offered 66% of the occasion by the equity funds far outweigh the returns of gold and FDs. As it is uncertain to know how many times you will fall in the 33% bracket, by investing in the equity mutual fund SIP plans, you can overcome such volatility and time the market easily.
Equity investment requires a lot of patience ensuring long-term growth. So don’t miss the chance of becoming wealthy by investing in the equity funds SIPs. Buy the best-suited fund for your portfolio at MySIPonline to live your dream of becoming a king.
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