Equity as an asset class has the potential to offer inflation-beating returns that results in real returns. Investing in equity over the long term helps build personal wealth and can lower your reliance on earned income for sustenance. However, equity investing requires skill and experience which most lay investors find challenging. A suitable way of investing in equity is through equity funds offered by mutual funds.
What is an Equity Mutual Fund?
An equity fund invests predominantly in shares of companies (65% or more of its total assets are invested in equity or equity related instruments). The remaining is invested in debt or money market instruments. Equity funds can be categorized based on the market capitalization of the company (market capitalization is computed by multiplying the number of shares issued by the company by its current market price), the investment style or geography. Examples of mutual funds are large-cap funds, equity growth funds, Index funds, etc.
How do Equity Mutual Funds work?
For an investor, investing in equity funds simply requires him to fill in the application form, complete the Know-Your-Customer or KYC requirements and fill in the cheque for the investment amount or transfer funds online to the mutual fund to make his investment in the mutual fund. The rest is taken care of by the fund. However, it's important to understand how the mutual fund actually manages your investments.
- In Equity mutual funds pool the money collected from investors is invested in portfolio consisting of equity or equity related schemes. Stocks are selected based on extensive research and analysis by the fund management team of the mutual fund.
- The mutual fund issues units (which are similar to shares) to its investors in proportion to their investments in the fund.
- The price of each unit is represented by its Net Asset Value (NAV), which is the current market value of total assets of the fund minus liabilities, divided by the total number of units issued.
- The NAV of the fund fluctuates with the change in the prices of the underlying equity securities and is updated every day after the market closes.
Benefits of Equity Mutual Funds
Equity funds offer a number of advantages to investors. Here are some key ones:
Who should invest in Equity Mutual Funds?
Equity funds are suitable for long-term investors looking for attractive returns by taking on fair level of risk. If you have a 5 to 10 year investment horizon, equity funds can be the right choice as there will be ample time to beat the volatility associated with ups and downs in the equity market. If you are looking for steady returns, you can invest in large-cap equity funds which invest in well-established businesses and provide a moderate-to-high rate of return. Investors looking for higher growth can venture into mid and small-cap funds which can provide exponential returns during market booms.
Building a well-diversified equity portfolio requires time, skills and a large capital outlay. You can use the mutual fund route to build your equity investment portfolio with the help of skilled and professional fund managers at a nominal cost.
Why Equity Mutual Funds Are Ideal for a Fast-Developing India
India’s rapid economic growth, driven by infrastructure expansion, digital transformation, and rising consumer demand, makes it an attractive market for long-term investors. In such a dynamic environment, equity mutual funds are one of the best investment choices for individuals looking to grow their wealth. Understanding equity mutual funds meaning and their advantages can help investors capitalise on India’s growth story.
Before investing, it is crucial to understand equity mutual funds meaning. These funds primarily invest in stocks of companies across various sectors, aiming for capital appreciation over the long term. Given India’s strong GDP growth, corporate earnings expansion, and increasing market participation, equity mutual funds allow investors to participate in the country’s economic success.
There are different equity mutual funds types that cater to various risk appetites and investment goals. Large-cap funds invest in well-established companies with stable returns, while mid-cap and small-cap funds focus on emerging businesses with high growth potential. Additionally, sectoral and thematic funds allow investors to target specific industries such as technology, healthcare, or infrastructure. Understanding these equity mutual funds types helps investors align their choices with their financial objectives.
Another major advantage of investing in equities is equity MF taxation. In India, long-term capital gains (LTCG) from equity mutual funds (held for more than a year) are taxed at 10% beyond ₹1 lakh in gains. Short-term capital gains (STCG) are taxed at 15%. Despite these taxes, equity funds remain attractive due to their superior return potential compared to fixed-income investments. The favourable equity MF taxation structure allows investors to accumulate wealth efficiently over time.
With India’s stock market consistently growing alongside its economy, understanding equity mutual funds meaning and selecting the right equity mutual funds types can significantly boost an investor’s financial growth. These funds remain a top choice for wealth creation in a fast-developing country like India.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
