If you have long-term financial goals, equity mutual funds can be one of the best vehicles to achieve them.
Equity mutual fund is suitable for investors who are seeking long term capital growth. The risk and return vary from scheme to scheme under equity mutual funds as they are either actively or passively managed by the fund managers.
Here are eight reasons for you to invest in equity mutual funds
Easy on pocket
Anyone and everyone can invest in equity mutual fund through SIP mode. One can start investing with just Rs 500 a month, A SIP allows regular periodic investments through ECS (Electronic Clearing Service) process where money gets automatically deducted from your bank account every month at a predetermined date.
One of the primary benefits of investing in equity mutual fund is to get capital appreciation benefit. It is one of the financial instrument which can give you high inflation beating returns. If there is an increase in stock prices, it would reflect in appreciation in the invested money. On can accumulate good amount of wealth over a period of time.
When you invest in equity mutual funds it gets spread into considerable sectors reducing the risk of losses in future. Therefore, if some stocks underperformed at the exchange, the outperforming ones can make up for the losses, hence minimises your market risk in your overall portfolio. However, one cannot escape all risks even having a well-diversified portfolio.Planning to invest in mutual funds? Here are 10 fund options to look at
Financial goal-oriented funds
If you have long-term financial goals, equity mutual fund can be one of the best vehicles to achieve the goal. The funds are categorised into large-cap, mid-cap, small-cap, etc. and accordingly the returns vary from fund to fund. The higher the risk associated, the more you have chances of getting higher returns to achieve your target amount.
Tax planning option
While investing through ELSS (Equity linked saving scheme) funds one can avail tax benefits. Investing lump-sum for 3 years lock-in period will help you get a tax deduction in the current financial year for up to Rs 1.5 lakh under section 80C of the Income Tax Act 1961. The schemes only have least lock-in as compared to other tax planning avenues like 5year -FDs, PPF, NPS, etc. They also tend to give much higher returns when compared to other tax-saving financial instruments. However, the returns are market linked and not guaranteed.
When your investments in equity mutual funds go beyond a holding period of 12 months, the returns become tax-free. However, if redeemed before a year, short term capital gain tax is applied at the rate of 15% which may reduce your appreciated capital to a much higher level and your actual returns may become negative. Therefore, it always advisable to invest for a long time horizon so that you not only earn high compounded returns but also, get all your money tax free once redeemed.
One need not review their funds daily as the schemes are managed professionally by fund managers. When an investor is unable to invest in equities due to lack of financial market knowledge, equity mutual funds are the best option. All the schemes are managed by professional fund managers who manage the money on behalf of several investors.
Easy to liquidateGetting the corpus back to your bank account is easy while investing through mutual funds. Redemption can be done at any point in time. Whenever you are in need of money, you can stop your SIP and redeem the number of free or all units you want. The whole process takes around about a week’s time but if your SIP is already matured, you can get your money back in three days.Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.