Know more about Equity Mutual Funds, Please fill in the details
Time and again you must have heard or read the quote “Make your money work for you” and probably many people would have advised you that investing your money is the way to go about it. When it comes to investments, generally bank deposits, real estate, gold, etc. are the avenues most sought for. Traditional thought about investing was to take a safe route by investing in avenues that give some fixed returns. However, with the changing social structure, increased life expectancy, improving lifestyles etc., you need to invest in avenues which provide easy access to money and has the potential to generate higher inflation adjusted returns. That being said, you must select an investment avenue based on your risk appetite, financial goal and investment horizon. The following chart compares different asset avenues and their long term performance.
Comparison of Returns of various asset classes (Assuming Rs. 100 invested in 1979-80; CAGR Returns till 2015-16)
Note: The returns calculated here are the returns based on the difference in S&P BSE Sensex Prices. Please note that the Dividend Yield will add to the overall returns. Investments in FDs & PPF offer guaranteed returns while those in Sensex & Gold offer market-linked returns & are subject to various market risks.
From a long term perspective, equity as an asset class scores over other asset classes in terms of performance. Investing in equities not only acts as a catalyst to returns but also provides easy liquidity. Additionally, the dividend earned in equities is tax free in the hands of investor. Also, there is no long term capital gain tax on equity investments held for more than 1 year.
However, taking direct exposure to equities has its own set of risks. Not all investors are financially sound or have an inclination or the required time or resources to constantly follow markets. Moreover, investors should also possess other skill sets like analyzing the past trends and project the future earnings too. To do away with this hassle, mutual funds offer various equity oriented schemes to cater to different investor needs of investor. Investing in equities via mutual funds offer various benefits:
Professional management: Mutual funds are managed by skilled and experienced professionals who not only understand the markets but also track them regularly. These experts analyze company’s performance & prospects before selecting suitable investments to achieve the investment objective. In any given environment, they try to find out the best companies to invest in based on their extensive research. A professional fund manager ensures that the portfolio holds quality stocks with potential for long-term returns.
Diversification: Mutual fund invests across companies and sectors thus reducing the overall risk of the portfolio by means of diversification. Additionally, there are sectoral limits and individual stock exposure limit in place which helps in spreading the risk and reducing concentration.
Variety of funds: Mutual fund offers various categories of funds catering to different investment need of an investor. There are sectoral funds and thematic funds, there are also funds based on market capitalization namely large cap funds, mid & small cap funds, diversified fund etc. Based on the risk appetite and the investment need one can choose the type of fund to invest in. For eg: An aggressive investor can look at sectoral or thematic equity fund while a moderately aggressive investor can look at diversified fund or a multi-cap fund.
Small ticket size: Some stocks trade at a very high price. Some investors might not be able to invest in those stocks because of requirement of a large investment. Mutual fund enables an investor to invest in various stocks with minimum subscription of Rs.500. Additionally; mutual funds offer a Systematic Investment Plan (SIP) facility, where investor can invest in small sums periodically. This staggered approach of investing helps one to increase exposure to equities in a systematic manner and also helps to reduce the average cost of purchase.
Taxation: Like in case of equities, the dividends earned by investors of Equity Mutual Funds are tax free. Also, the capital gains in equity mutual funds are tax free after a period of 1 year.
Equity mutual funds offer a hassle free, cost effective and an efficient mode of investing in equity markets. Add the flavor of Equity Mutual fund to boost the overall returns of your portfolio.
Disclaimer: The information used towards formulating the outlook have been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.
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Mutual fund investments are subject to market risks, read all scheme related documents carefully.