Equity funds invest the pooled investor money into shares of various companies. The gains or losses arising from the rise or drop in prices of these shares in the stock market decide the performance of the Mutual Fund.
Mutual funds, and specifically Equity Mutual Funds, as a way to invest have been around for a while. Their popularity in India is nonetheless a more recent phenomenon. This article will help you make sense of what Equity Mutual Funds are, and specifically, how they help you.
Mutual Fund basically pools money from multiple investors, such as you, and invests them in baskets of investments. These baskets form what is called a portfolio.
This means, your money is invested in a group of investments (either stocks or debt instruments), and in a simple, as well as accessible manner. On a basic level, mutual funds are classified as equity funds, debt funds, and money market funds on the basis of where they invest.
Equity Mutual Funds are the most numerous as well as popular form of Mutual Funds you will come across.
Equity Mutual Funds invest the pooled investor money into shares of various companies. The gains or losses arising from the rise or drop in prices of these shares in the stock market decide the performance of the Mutual Fund.
When an investor invests in an Equity Mutual Fund, the price that they pay for each unit of the fund is the Net Asset Value (NAV).
Net Asset Value is the book value of the fund. Book Value is the difference between what the mutual fund owns (assets) and what the mutual fund owes (liabilities). The assets are shares that the fund bought. Liabilities are made up of expenses that are incurred for running the mutual fund.
The NAV is directly impacted by the price fluctuations in the stock market.
The investment activities of a mutual fund, equity or otherwise, are professionally managed by fund managers. These fund managers are capable as well as qualified individuals who are selected after a thorough review.
Investment in equity funds can be made in two ways
Wondering which one is the better way to go?
Net Asset Value of the fund increases if the market value of funds portfolio holding increases (after subtracting its liabilities and expenses). Growth in NAV denotes the higher value of investor’s capital. The profit investor makes here stays reinvested to earn more money. Compounding effect helps the investor with long-term growth.
When equity fund earns profit in the form of dividend on the underlying stocks in its portfolio holding, it pays investors in the form of dividend payouts. Ideally this should be reinvested (by going for a growth option) in the fund to gain from compounding.
In case of equity funds, gains after a holding period of one year are considered long-term gains and are exempt from taxes. Also, dividends on equity funds are tax-free in the hands of investors.
Among the wide range of equity funds available, there are tax saving equity funds which come with a lock-in period of 3 years that help initial investors to save on tax. Investment in this particular equity fund is eligible for tax deduction under section 80C of the Income Tax Act.
To conclude, equity funds offer widespread diversification to investors with a medium and high risk appetite. Under the well regulated industry framework, it provides access to professional fund managers with a low transaction cost.
This makes Equity Mutual Funds a good investment choice for initial and small investors with the long term goal of growth in wealth at a higher rate of return. If you want to get started with equity mutual funds.
Every year, it is our endeavor that your money is invested in the best mutual funds. Here’s a list of our scientifically selected recommended mutual funds to invest in 2018.
Your long-term money needs to be invested in equity mutual funds to beat inflation. Here are the 4 equity funds we recommend for 2018.
You are aware that Tax Saving (ELSS) funds are the best way to save tax and invest for the long term. Our recommendation:
(Note: this recommendation follows a financial year and the funds for FY 2018-19 will be announced in March 2018)
alternative to bank FDs, debt funds provide better returns after taxes are taken into account. We evaluate the safety of the funds and their track record and recommend a portfolio of 3 funds for your short-term money needs.
The money you may need quick access to, our recommended fund comes with a debit card, so you can withdraw your money at any time - day or night and also on weekends.
You can use this fund to create your emergency fund too.
We follow a rule-based, scientific approach to shortlist just 10 best mutual funds from the universe of 8,000+ options.