Mutual funds, like any financial instrument, come in several variations. One of these is an equity fund. By definition, equity mutual funds are those which are investing principally in stocks. Equity mutual funds invest collated amounts of money in the stocks of private companies, which represent the investors holding or equity in the total stock of the company. Equity funds can be a gamble, no doubt, but their rising popularity is due to five specific benefits that trump other investment avenues.
For starters, equity funds enable significant diversification of the investor’s portfolio even with small amounts of money. In other investment avenues, such as fixed deposits, one cannot expand their portfolio very aggressively if one does not have a large amount of money, to begin with. In it, however, one can pick out the stocks they can or cannot afford, thereby allocating their investments appropriately while simultaneously diversifying their investment portfolio. The required investment amounts for some funds can be as low as Rs. 500. Equity funds also come with the added bonus of professional management services.
Fund managers come highly qualified and work to bring you maximum returns on your investment. They do this by consistently tracking market activities and looking for favourable investment channels. With their professional experience and familiarity with the economic sectors, a fund manager can work wonders for client’s portfolios. Equity mutual funds come with several tax benefits. For example, the dividend or returns that the investor will receive on his equity shares are non-taxable, whereas in a case on non-equity funds, investors may be required to pay a dividend distribution tax of approximately 13% out of their own pockets. If what you are looking for is liquidity, then investing in it will prove to be highly convenient.
Unlike fixed deposits or even debt funds, where the principal amount of the investment must be retained with the institution concerned, equity shares can be bought or sold on any given business day, which makes your investment accessible to you at all times. Moreover, there are no penalties levied on or damages suffered by your investment in the case of an equity mutual fund. Brokerage commissions, bank fees, capital gains tax… these are all expenditures one can save on. The more you save, the richer one gets. By initiating equity investments in an account opened directly with the mutual fund, one avoids these payments altogether. Over time, these benefits can be very substantial. What’s more, one can even reinvest them for added returns.