What are Equity Mutual Funds and why are they good for Investment?
Aug 08, 2019 14:27
What are Equity Mutual Funds?
An equity mutual fund investment is principally a stock fund-an investment in stocks whose size is determined by market capitalization. Its price is based on the fund’s net asset value fewer liabilities. For most people they are practical investments that should be made during peak times, and people aim to invest for longer periods of time to get good returns.
What are the types of Equity Mutual Funds?
Equity funds can be categorized as domestic or international. A diversified equity mutual fund invests over a variety of stocks and is not focused on a single sector or theme for investment. Due to this diversification, equity funds tend to be less volatile than sector specific funds. To ensure uniformity when investing in equity mutual fund schemes, SEBI categorizes market capitalization as:
•Large-caps: First 100 companies
•Mid-caps: All companies from 101st to 250th
•Small-caps: 251st company onwards
Why should you invest in Equity Mutual Funds?
•Equity funds are ideal for investors who don’t possess a large amount of capital or financial know-how. Equity funds are most suitable for small individual investors because they require relatively small amount of capital. You can buy quality equity funds from around 5000 INR.
•In case of equity funds, a great advantage is the vast number of funds available in a stock exchange, a particular market sector (technological, financial), or foreign or domestic markets. Equity funds are of various types and characteristics that suit a variety of investment objectives.
•Equity mutual fund let you invest in several stocks, diversifying your portfolio so that you can sit back and relax even if a few stocks fall dramatically!
•Skilled research professionals appointed by the mutual fund house continuously monitor your stocks so if you invest in Best equity mutual funds you need not worry about keeping track of the prospects of your funds on a regular basis.
•Equity mutual funds let you switch from one fund to another and offer automatic re-investment plans, systematic investment plans (SIPs), systematic withdrawal plans (SWPs), etc.
•Equity funds offer liquidity while investing; you can buy or sell at that day's NAV through online transactions or simply by simply approaching the fund house. After all, Investment in mutual funds offers certain benefits that are unavailable for stock investors. Learn about ftse index to know more about funds.
How risky are Equity Mutual Funds?
•Price Risk: Equity mutual fund schemes call for long-term investments, so short-term price changes will not deter you. You must be prudent while purchasing equity mutual fund schemes, keeping in consideration their past performance.
•Liquidity Risk: Difficulty in liquidating your assets or holdings may lead fund managers to sell them at much lower price resulting in losses.
•Macroeconomic Risk: Inflation, interest rates, growth, corporate earnings, etc. affect the overall value of the equity funds.
What are the 3 best Equity Mutual Funds for me?
•Aditya Birla Sun Life Equity Advantage Fund Growth Direct Plan: With a minimum investment of 1000 INR, this plan aims to achieve long-term growth of capital, at relatively moderate levels of risk through a diversified research based investment in Large & Midcap companies. The Aditya Birla Sun Life Mutual Fund is one of the leading Fund Houses in India and offers this fund for various sectors. This equity fund has a value of trust associated with it, having assets of prominent companies such as Reliance Industries Ltd (8.13 %), HDFC Bank Ltd (7.79 %), ICICI Bank Ltd (7.04 %), and State Bank of India (3.4 %).
•HDFC Equity Fund -Direct Plan: Your investment in India’s largest and well established mutual funds house, HDFC Mutual Fund can begin from a minimum of INR 5000. Top holdings in this trusted equity fund include assets from companies like State Bank of India (9.81 %), ICICI Bank Ltd (9.74 %), Larsen & Toubro Ltd (9.09 %), and Infosys Ltd (8.75 %). This plan has been made with the purpose of generating capital from a portfolio, predominantly invested in equity & equity related instruments.
•Mirae Asset Large Cap Fund Direct Plan Growth: HDFC Bank Ltd (8.64 %), Reliance Industries Ltd (5.83 %), ICICI Bank Ltd (4.99 %), and Axis Bank Ltd (4.29 %) are the top companies with their assets invested in this scheme from Mirae Asset Global Inv (India) Pvt. Ltd. The objective of the scheme is to generate long term capital appreciation by capitalizing on potential investment opportunities by predominantly investing in equities of large cap companies.
Things not to overlook if you want great returns from your investment in Equity Mutual Funds:
•All mutual funds are required to be approved by the Securities and Exchange Board of India (SEBI) before it can collect funds from the public.
•Pick the right equity fund. One that performed consistently across multiple market cycles across with decent risk-adjusted returns. Buy an equity fund with a higher credit quality.
•The price of the equity fund is based on the fund's Net Asset Value (NAV) less its liabilities. NAV is the market value of the securities held by the Equity Mutual Fund scheme; it is required to be disclosed by the mutual funds regularly.
•All Equity Mutual Funds have a holding period of 5-7 years or more; they are all long-term investments. Private equity funds typically purchase entire companies creating a less liquid investment that is often held for
3 to 7 years.
•Capital gains on sale of equity mutual fund units are taxable like other investments. In fact, short-term capital gains arising out of sale of equity fund units held for less than a year attract a 15% taxation.
•Before you embark on the journey of investing in mutual funds, you need to complete your KYC (Know Your Customer) formalities.
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