Equity mutual funds
Equity Mutual Funds – High Risk but High Returns
Equity funds (Equity oriented Mutual Funds) are long-term funds also known as Stock funds because, in these funds, the full amount is invested in the stocks to provide high returns but with high risks.
Top/ Best Equity Mutual Funds:
- Franklin India Bluechip – Growth
- HDFC Top 100 Fund – Growth
- Franklin India Prima Fund – Growth
- Nippon India Growth Fund – Reg – Growth
- Aditya Birla Sun Life Flexi Cap Fund – Growth
- Franklin India Flexi Cap Fund – Growth- 19.7%
- HDFC Flexi Cap Fund – Growth
Why invest in Equity Mutual Funds:
- Potential to generate High Returns on investment when compared to the other mutual funds.
- Ideal investment for long term horizon, like investing for retirement, children’s wedding, our house, own marriage or other long-term goals.
- No lock-in a period like ELSS funds and can be withdrawn any time but if redeemed before certain let’s say within a year then around 1-2% exit load depending on companies,
Advantages of investing in Equity Mutual Funds:
Potential for Higher Returns: Equity Mutual Funds are renowned for their potential to generate superior long-term returns. By investing in a diversified portfolio of stocks, these funds tap into the growth potential of companies. Historically, stocks have shown the ability to outperform other asset classes, leading to significant capital appreciation. Moreover, some companies distribute dividends, adding to the overall returns.
Professional Management: Entrusting your investments to Equity Mutual Funds means benefiting from the expertise of seasoned fund managers and investment professionals. These professionals conduct thorough market research, analyze financial trends, and evaluate individual stocks to make informed decisions. Their experience aids in maximizing potential returns while managing risks effectively.
Diversification for Risk Mitigation: One of the key advantages of Equity Mutual Funds is the inherent diversification they provide. These funds pool resources from multiple investors to create a diversified portfolio of stocks across various sectors and industries. By spreading investments across numerous companies, the impact of poor performance by a single stock is minimized, reducing overall portfolio risk.
Liquidity and Accessibility: Equity Mutual Funds offer high liquidity, enabling investors to buy or sell fund units on any business day. This level of accessibility provides flexibility, allowing investors to access their funds promptly when needed. Unlike certain investment options with longer lock-in periods, Equity Mutual Funds ensure that your investment remains liquid.
Varied Investment Options: Equity Mutual Funds cater to a diverse range of investor preferences through various categories. These categories include large-cap, mid-cap, small-cap, sector-specific, and thematic funds. This extensive spectrum of options empowers investors to align their choices with their risk tolerance, investment horizon, and financial goals. Whether you seek stable growth or are open to higher risk for potentially higher returns, there’s a fund category for you.
Equity Funds VS Debt Funds
1. Investment Type:
Equity Funds: Invest in the stocks or shares of companies listed on stock exchanges. This ownership gives investors a stake in the company’s ownership and profits.
Debt Funds: Invest in fixed-income securities such as government and corporate bonds, debentures, and money market instruments. Investors lend money to the issuer in exchange for periodic interest payments.
2. Risk and Return:
Equity Funds: Generally have higher risk due to market volatility and fluctuations. They offer the potential for higher returns over the long term, as companies’ success can lead to capital appreciation and dividends.
Debt Funds: Carry lower risk compared to equity funds. They offer relatively stable returns, primarily driven by interest payments and changes in bond prices. The potential for capital appreciation is lower.
3. Investment Horizon:
Equity Funds: Suited for long-term investment goals (5 years or more) due to market volatility. They allow investors to benefit from compounding over time.
Debt Funds: Suited for short to medium-term investment goals (1 to 5 years), as they offer consistent income and are less affected by short-term market fluctuations.
4. Volatility:
Equity Funds: Experience higher volatility due to market dynamics, economic conditions, and company performance.
Debt Funds: Tend to be less volatile as they are influenced by interest rate movements and credit risk.
5. Income Generation:
Equity Funds: Primarily generate returns through capital appreciation and dividends. Dividends are not guaranteed and depend on the company’s profits.
Debt Funds: Generate returns through interest payments from the bonds. These payments are relatively predictable and provide regular income.
6. Diversification:
Equity Funds: Provide diversification across multiple stocks and sectors, reducing the impact of poor performance of individual companies.
Debt Funds: Offer diversification across various debt instruments, reducing credit risk associated with individual issuers.
7. Taxation:
Equity Funds: Gains held for more than one year are considered long-term and taxed at a lower rate. Short-term gains are taxed at the investor’s income tax rate.
Debt Funds: Taxation varies based on the holding period. Short-term gains are added to the investor’s income and taxed accordingly. Long-term gains can benefit from indexation for lower taxation.
8. Suitability:
Equity Funds: Suitable for investors with a higher risk tolerance, long investment horizon, and seeking potential higher returns.
Debt Funds: Suitable for conservative investors, those looking for stable income, and shorter-term investment goals.
Investing in SIP:
- Monthly SIP [Systematic Investment Plan] is just a way of automatically investing the money on a monthly basis in the selected scheme, in a disciplined manner.
- An investor can invest in mutual funds taking the SIP route for a year or two years.
- As suggested by many advisors it’s safe to invest if you plan to keep your investment untouched for a minimum period of 5 years
