Whyinvestment in equity mutual fund ideal for long term investing?Primarily, mutual funds help investors to earn income orbuild their wealth by allowing them to participate in opportunities availablein securities market through mutual fund schemes. Investors buying a scheme can choose their preferredoptions from the various options like dividend payout, dividend re-investment andgrowth options available in the scheme.Know about EquityMutual FundEquity mutual fund is a scheme where the investor invests inequity funds, mainly comprising of stock of small, mid-size, large or multi-capcompanies, apart from bonds. The main objectiveof investment in an equity mutual fund is to purchase the company’s shares andgenerate high returns as the company grows. Equity mutual funds are greatinvestment options capable of generating good returns when compared to debtfunds or fixed deposits.
Why to choose Equitymutual fund over other funds on a longer term?Common people lack the expertise and knowledge when it comesto investments. There are more chances to develop misconceptions if a properguidance is not provided. How good itwill be if all this is taken care of?>In equity mutual funds, you will be provided with fund managers with expertise in equityinvestments, from the Asset Management Companies. Mostly, they have a vastexperience of buying and selling stocks in the market. The team of fund managers is guided by theresearch team who assists them in selecting the best stocks that may returnhigher revenues in the future. Based on the feedback received from the researchteam, the fund managers deploy your money in stocks of small, mid, large ormulti-cap companies.
You need to pay a nominal annual fee to get the professionalservices of the fund manager and the fee may be deducted from your investedmoney. This definitely is worth as yousave a lot of valuable time , which otherwise is required to find the financialstatus of a company and understanding the future prospect of a specific sectorbefore investing.>You may ask how much money is required to invest inequity funds.
Well, not much. You may start with as low as Rs. 500 per monththrough SIP (Systematic Investment Plan). SIP is an automatic periodicinvestment that happens on a pre-determined date. Your money is deducted from your bank account onthe specific date (mostly the beginning of the month) through ECS(ElectronicClearing System). You can stop SIPwhenever you are in need of money and can redeem all the unit stocks you want within a week’stime. This is one of the advantages available in the equity funds which helpsyou to remain invested for a longer term.
>So what about the stock options in equity funds?Normally in other mutual fund schemes, you have the option to buy stock in one specificsector of company , say one stock of large company or one stock of two mid-levelcompanies. So, there is high risk involved if the specific sectorunderperforms. However, in equity mutual funds, you can invest the same amountin diversified sectors to reduce losses and market risks, if stocks in certainsector underperforms. This helps you to benefit from the growth of allcompanies and gets exposure to large number of stocks with the same amount ofmoney.>What if there is high inflation? With equity mutualfunds, you get the inflation returns.
In other words, if stock prices increase,there is also appreciation in the invested amount ensuring you get maximumbenefits out of the scheme.If you still aren’t convinced for a long term investment inequity funds, here is one benefit that may be appealing to the common man and dojustice to their hard-earned money: Tax-free returns. Who doesn’t love that? Equitymutual funds give you the advantage of tax-free returns on your invested money,if investment is over a period of 12 months;while the invested amount is taxed at 15% if held for less than a year.