What are Equity Mutual Funds and how they can provide path for financial future?
We are facing unprecedented times and the importance to secure a future from a financial perspective is all that more important. Financial planning for the future can prove to be incredibly beneficial. What you can save today is going to help in securing a better future, tomorrow. Taking the concept of ‘a penny saved is a penny earned’ and giving it a more concrete form is the concept of Mutual Funds. In this article, we would provide details about how equity mutual fund schemes can provide path for financial future.
Also Read: Best SIP Mutual Funds to invest in 2020
What are Mutual Funds?
You can skip this section if you are already familiar with mutual funds.
It is the pool of resources invested by the public in different securities. Known as the corpus, this total amount of money is diversified into different securities (stocks, bonds and other assets) to reduce the risk factor. Once the corpus has been invested, units are allocated to each investor depending on how much each individual has invested. Depending on the investments the fund/unit holder informs the investors about their respective profits or losses.
What are Equity Mutual Funds?
Equity Mutual Funds have exclusively got to do with investing in stocks. These units are categorized on the basis of company size, investment style of the portfolio holder and geography. There is a certain risk that comes from investing in Equity Mutual Funds that largely depends on the fluctuating market conditions. With a little time and patience, it pays off. There are many options available to investors so a decision needs to be taken after careful consideration and talking with a professional who will responsible for investing on your behalf. It is always a wise decision to let the professional invest in Equity Mutual Funds on your behalf. The many categories of Equity Funds include Investment Strategy-based, Market Capitalization-based, Tax Treatment-based and Investment Style-based.
Equity Mutual Funds vs. Debt Mutual Funds – Choose which is better for you
i) An equity mutual fund is solely about investing in stocks whereas a debt mutual fund invests in different kinds of government securities, corporate debentures and other debt instruments.
ii) Debt mutual funds are also less risky as compared to equity mutual funds. The former provides stable returns at a low-risk, whereas the latter is bound to give you higher returns but at the cost of higher risk.
ii) Unlike debt mutual funds, equity funds also enjoy favorable tax treatments.
FAQs about investing in mutual funds
Here are some basic FAQs which every investor should know.
1) What is Net Asset Value (NAV)?
This is value of the entity or fund’s assets less the value of its liabilities. This is a per-share value calculated for each mutual fund. It is the market value of the securities and it changes every day. When you have a higher NAV, fewer units will be purchased and when its low, more units will be purchased. At maturity, it averages out so there is not much risk on your investments.
2) Do I need to pay anything to the distributor who is selling me the Equity Funds?
Investors do not have to pay any entry load for investing in mutual funds. An investor has to choose a distributor, bank or fund house for investments after careful consideration which includes factors such as services offered by the distribution house, kinds of mutual funds that it deals in, etc. Some banks / mutual fund platforms put transaction charges.
3) When is the right time to invest in equity mutual funds?
Investing in mutual funds is about setting long-term goals for your finance. However, investing in these mutual funds depends on certain factors such as how willing are you to take risks and how long are you willing to keep investing. While you can invest in equity funds anytime, it has to be done keeping in mind that it has to go on for 5-7 years.
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Team – Myinvestmentideas
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