Equity Mutual Funds: Suitable for investors seeking long-term capital growth
Posted by Nivesh.com | Mutual Funds For All on May 2nd, 2019
The beauty of investing in mutual funds is that there is a suitable product for everyone irrespective of the time horizon, investment objective and income profile. Equity Mutual Funds, with significant exposure to equities, are the perfect solution for investors looking to build long term wealth.
What are Equity Funds?
Equity Funds are mutual funds that invest the majority of the corpus (minimum 65%) in the shares of listed companies. Such listed companies could be either large companies like HDFC Bank, Infosys, Maruti, IndiGo or smaller companies like Emami, Escorts, Exide. Listed companies represent organized sector, which is a major beneficiary of government initiatives like GST. Such companies also benefit from growth in the overall economy, which ultimately results in higher returns to the investors. This is the reason, historically, Equity Funds have yielded higher returns than other asset classes like Fixed Deposits, Gold and Real Estate.
Considering the variations in investors’ financial goals, appetite to handle volatility and the market capitalisation of different stocks, the Securities and Exchange Board of India (SEBI) has categorized Equity Mutual Funds into ten categories:
Investors can choose the best suitable schemes with the help of their advisor in line with their investment objectives.
Equity Funds and Market Volatility
Stock markets are inherently volatile and as a result, the returns from Equity Funds are volatile. However, over the long term, the returns are generally higher than any other asset class. One needs to be able to understand this aspect before investing in Equity Funds. Systematic Investment Plans (SIPs) are recommended for investing in Equity Funds because of this volatility, as investing at different points of time results in averaging the cost of investing.
Performance of Sensex over the last 30 years
Who should invest in Equity Mutual Funds?
Equity Funds and Taxation
Equity Funds offer superior taxation structure compared to other asset classes:
Exposure to equity is important for financial well being, and investing in Equity Funds is better than directly in stock markets.
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