Why to invest in Equity Mutual Funds?

Equity Mutual Funds

Equity Mutual fund investments are investments which are made in a Mutual Fund scheme which is investing in equity or stocks, representing ownership equity or share in companies. Equity funds generate higher long term returns by investing in the shares of companies of different market capitalization. They have potential to generate higher returns than inflation and interest rates prevalent in the economy, thereby a natural choice for long term compounding and wealth creation.

Equity Mutual Funds are a diversified portfolio of Stocks which represent good businesses in the opinion of the Fund Manager based on research and diligence conducted by him and his team in their Mutual Fund Asset Management Company.

Equity funds have unique benefits over and above other the Mutual Funds categories, in addition to some common benefits,and some of these are listed as below:

Advantages of Equity Mutual Fund Investments:

Diversification – Perhaps the chief aspect that distinguishes mutual fund investments from other ones is diversification. In order to decrease the vulnerability of peril to any security, the investors’ money is distributed into different securities, optimizing the reward for the risk taken.
Inflation Beating Returns Historically Equity and Equity oriented funds have generally given inflation beating returns as Equity asset class has given good returns in the past and mutual fund schemes have mostly outperformed their respective benchmarks.
Tax Benefits – Equity Mutual Fund investments entitle you to certain Tax benefits as listed below:
1. Long Term Capital Gains Tax , if you sell after 1 year of holding is only 10% and Short Term Capital Gain Tax is 15%.
2. Dividends are Tax free in the hands of the investors, however before distributing the dividend the Mutual Fund Scheme deducts 10% as Dividend Distribution Tax.
3. There is a category of Equity Funds namely, ELSS which entitles you to a deduction upto Rs1.50 Lacs under sec 80C of the Income Tax Act, thereby helping you to save Tax. Equity Linked Saving Schemes popularly known as ELSS Funds have a lock in period of 3 years.
Professional Fund Management – The fund managers, who’re highly skilled and experienced at their task, look after your money once you put it in mutual funds. Hence, you can be assured that your assets are managed with skillfulness.
Transparency - Mutual Funds are required to disclose their portfolio, where the investors money is invested, of every month end in the first 10-15 days of the successive month.
Regulatory Comfort: Mutual Funds are very tightly regulated and closely monitored by SEBI and have to adhere and follow the rules made by SEBI for each and every aspect of Mutual Funds.
Flexibility – Mutual Funds offer a choice of investing either through “Lump Sum” or to invest monthly through “SIP”- (Systematic Investment Plan) . SIP is popular among investors who wish to build up the amount required for future Financial Goals of their family and also for long term wealth creation by investing a certain portion of their monthly income in Equity Mutual Funds.
Low Cost - Mutual Funds achieve economies of scale as they collect and invest large sums of money. Mutual Funds are able to offer a lower cost of managing your funds as the cost of running a Mutual Fund is divided between a larger pool of money.
Liquidity – The availability of diverse open-ended plans that furnish the investors with effortless cash convertibility makes it quite easy for the investors to retrieve their funds as and when needed.
Financial Goal-Oriented Funds - There are certain Mutual Funds Schemes which are Goal oriented and can be used by investors for achievement of their financial goals or desired outcomes. These funds help the investors to stay focused on the goal, and allocate the amount on lump sum/ regular basis for achievement of the goals. Some examples of goal oriented funds are as follows: