Equity Mutual Funds: Benefits, Risks and Who Should Invest

Introduction to Equity Mutual Funds

Are you planning to invest in mutual funds and someone told you to invest in equity mutual funds? Have you ever thought why equities are the best choice for any investor? The answer is that equity funds are those investment options that put your money into stocks.

Believe it or not, Equity mutual funds are gaining popularity in everyday investing. The total assets under management have crossed Rs33 lakh crore, which is a positive sign that people are looking beyond old saving methods for real growth. But not all the funds delivered significant returns. Do you want to know the real risks, benefits and who can invest in these funds to maximise returns? Let us dive deeper to understand this.

What is Equity Fund?

Equity Mutual Funds are those mutual funds where a professional fund manager collects money from investors like you and then buys shares in different companies. This makes your investment simple, as you can grow your money over a long period without having to pick individual stocks yourself.

How Do Equity Mutual Funds work?

When you invest your money is combined with that of other investors to create a diversified portfolio of stocks. The aim is to divide the money across different sectors and companies rather than putting all your money in one stock. The fund manager regularly tracks the market and adjusts the portfolio based on the market conditions and company performance. Over time, as the dividends are paid or the stock value rises, your investment grows. Of course, the market can fluctuate, so returns are not guaranteed, but if we look at past trends, equity mutual funds have offered increased growth potential over old savings schemes.

Benefits of Investing in Equity Mutual Funds

These mutual funds let you grow your money in the stock market without the stress of picking individual stocks. Let us look at more benefits:

• Equity funds invest your money in stocks, which means your money will grow much faster than old savings methods.
• You don’t need to be a market expert to select the best stocks. Fund managers do all the good work for you.
• Your investment is divided across many sectors and companies, saving you from significant losses and market risks.
• You have clear knowledge of where your money is invested and you can also withdraw when needed.
• Investing a little every month through SIP makes the investment less stressful and more rewarding in the long run.

Risks Associated with Equity Mutual Funds

Investing in mutual funds can be exciting, but it is also important to remember that there are risks involved. Knowing them beforehand can help you to stay safe when the market fluctuates. Below are some notable risks involved:

• Stock prices are unpredictable, which means they rise on a day and may fall the next day. Awaring yourself about them can help you stay calm during these market swings.
• Your money is in professional hands, but even experts can make decisions that don’t always work as expected. A fund manager’s strategy and decisions can impact your returns.
• Equity funds are meant for the long run, but reacting to short term temporary falls can hurt your long term gains.

Who Should Invest in Equity Mutual Funds?

Equity mutual funds are not for everyone, but many investors find them suitable. Here is a glimpse at who might benefit the most:

• The equity mutual funds can be a smart choice if you are planning for the future, like buying a house, funding your child’s education or building a retirement fund.
• Just starting your investment journey? Equity funds are ideal for beginners who want to start investing in the stock market without the stress of picking individual stocks.
• These mutual funds do have market risk involved, so they are most suitable for investors who are comfortable with short term fluctuations in their portfolio.
• Equity linked savings schemes (ELSS) are a type of fund that also helps you save on taxes under section 80C. They are a smart option for investors looking to reduce their tax liability.

Best Equity Mutual Funds in India

Let us take a look at the best equity mutual funds and their key performance metrics:

• Bandhan Small Cap Fund: Small cap equity fund with a low expense ratio of 0.42%, delivering returns of 22.72% and 23.03%.
• Invesco India Mid Cap Fund: Mid cap equity fund with an expense ratio of 0.54% and strong returns of 25.33% and 23.51%.
• ICICI Prudential Large & Mid Cap Fund: Large & mid cap equity fund charging 0.77%, with returns of 18.71% and 20.41%.
• Nippon India Multi Cap Fund: Multi cap equity fund with an expense ratio of 0.71%, generating returns of 16.55% and 20.18%.
• ICICI Prudential India Opportunities Fund: Thematic equity fund with an expense ratio of 0.65%, offering returns of 19.84% and 22.04%.

How to Invest in Equity Mutual Funds

The equity mutual funds investment is easier than it sounds, but choosing the right approach can make a big difference to your long term wealth.

• Set your investment goals such as buying a house, a child’s education or retirement & decide your time horizon.
• You must check the risk factors and your comfort with market ups and downs before choosing a fund.
• Pick a fund that aligns with your goals, risk profile and past performance.
• Choose between lump sum or SIP (Systematic Investment Plan) based on your comfort and cash flow.
• Select a platform with a good reputation, open an account, complete your KYC & make a payment.
• Keep track of your fund’s performance, but avoid reacting to short term market fluctuations.

You can make these funds work effectively for your financial future by combining your goals with the right investment strategy.

Conclusion: Are Equity Mutual Funds Right for You?

To summarise, equity mutual funds are not just for experts; they are for everyone willing to think long term growth potential, professional fund management, diversification, easy access to their money and the power of compounding through SIP. To take advantage of investment in these mutual funds, you also must take care of your goals, understand your risk comfort and stay patient. If you are ready to think forward and stay consistent, these funds can be a powerful option to help you reach your financial goals.