Equity Funds are a pooled investment that draws money from various investors to build a considerable corpus and invest in various stocks. They are also called Stock Funds, which are witnessing rising popularity as they tend to generate good returns. Fund managers select the stocks based on your objective. An online Mutual Fund collects money from several investors and invests it in different instruments to form a portfolio.
The multiple benefits make it a profitable avenue for you to place your money. Despite the risks involved. Here are its advantages:
- Diversification
Equity Funds offer diversification in many ways. They invest in stocks, sectors, and asset classes. You can own a share in Equities across capitalization and pan sectors. You benefit from the profits and reduce the risk with even fund distribution. Also, the inclusion of fixed income securities and other money market instruments further diversifies and balances the investment portfolio.
- Professional Management
Analysts with experience and expertise in fund management manage Equity Mutual Funds. They research and analyse the stocks and market trends and aim to outperform the benchmark indices. They seek to generate superior returns than the market indices for their investors. Thus, many investors who lack the skill or the time to track the market or predict the stock performance can consider investing in Mutual Funds.
- Risk Mitigation
Owing to diversification, where the fund corpus evenly spreads over various stocks, it also spreads the associated profits and risks. When one stock under performs, the other might pick up. Similarly, if one sector falls, the other tend to balance the portfolio, reducing the loss incurred.
- Wealth Creation
Equity Funds generate the highest returns among different investments. They may offer inflation-beating returns to help the investors create a good corpus in the future. If you have long-term goals of capital generation, consider investing in Equity Funds. They involve risks but bounce back if you hold them for a long duration.
- Cost-efficient
Equity Funds are cost-efficient. You can be a shareholder in numerous companies through small investments without a high capital requirement. As the fund size grows, the amount spreads over more fund units, making the cost cheaper. You can invest through SIP with an amount as low as Rs. 500 depending upon the AMC.
- Liquidity
These funds invest in stocks traded on the market. The sale and purchase make the funds highly liquid. Similarly, investors can quickly redeem the Equity Mutual Funds units whenever desired. Once redeemed, the money equals the unit value when sold and gets deposited in your account within a few days.
- Dividend Income
Equity Funds offer investors to choose between growth and dividend plans. Under a dividend plan, you get dividend income either monthly, quarterly, bi-annually, or annually. A dividend is the cumulative profit of all stocks. The profits earned from an Equity Fund are divided among all investors as per their unit holding after deducting applicable charges.
