6 Reasons to Invest in Equity Mutual Funds

A lot of investors who have long term financial goals to achieve consider investing in market linked schemes like equity mutual funds. An equity mutual fund is an open ended scheme that invests the majority of its investible corpus in equity and equity related instruments of publicly listed companies. Of its total assets, an equity mutual fund may invest anywhere between 65 percent to 80 percent in equity and equity related instruments of publicly listed companies.

Here are six solid reasons to invest in equity mutual funds:

Mitigate diversification

Through investments in equity mutual funds, investors are able to mitigate their overall investment risk. Equity mutual funds invest in companies spread across market capitalization. A single unit of an equity mutual fund is a combination of multiple credible stocks with huge growth potential. Investing in equity funds is better than investing in direct stocks as a single share of company stock may cost thousands of rupees whereas investors can invest a small sum in an equity fund that has exposure to various such expensive stocks. 

Start low

If you are new to mutual funds and do not want to invest big right at the beginning, you can even start with a low investment sum. There are SIPs(we’ll discuss SIP in the next point) starting at a sum as low as Rs 500 per month. Once you gain confidence in your invested equity fund and are convinced that it can help you create long term wealth, you can increase your investment sum.

Start a monthly SIP

The best way to invest small, fixed sums at periodic intervals in equity funds is via a Systematic Investment Plan. Commonly referred to as SIP, a Systematic Investment Plan is a simple and effective way to create long term wealth. All an investor has to do is decide the monthly SIP investment sum and continue investing this sum till your investment objective is accomplished. SIPs offer immense flexibility as you can start or stop your SIP investments at any given time. Investors can even use the online SIP calculator, a free easy to use tool that computes results and derives results in a jiffy. One can use the SIP calculator to compute the future potential returns that they can earn from SIP investments. Investors can even benefit from the power of compounding and rupee cost averaging if they continue investing in equity funds via SIP for a long period.

Equity Funds are regulated

Every mutual fund scheme in India is regulated by market regulator SEBI (Securities and Exchange Board of India). Similarly, equity schemes must maintain transparency with their investors. Chances of investors getting cheated with mutual fund investments are close to NIL which makes them an ideal long term wealth creating tool.

Target long term financial goals

If you have any long term financial goals like build a commendable retirement corpus or want to financially secure your child’s future or want to improve your existing financial condition in the near future or want to build a wedding corpus for your daughter’s marriage, you can target all such goals with equity mutual funds. Since equity oriented schemes take time to perform to their fullest potential investors should consider investing in them more a minimum duration of 5 years and maximum duration as per their investment goal.

Save tax

By investing up to Rs 1.5 Lacs in Equity Linked Savings Scheme (ELSS), investors can save up to Rs 46,800 in tax every fiscal year. Not only can you save tax by investing in ELSS, but you might also be able to earn some good returns over its three year lock-in period.

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