There are different kinds of people with different aspirations and financial backgrounds. They have varying amounts of income and expenditure. There are a few things that a person can and cannot afford to buy. It depends on the financial capacity and the kind of problems each faces. There are many categories of investments that they can use to earn better returns and save for the future.
Equity mutual funds are popular amongst all investors with low investment budgets. A fund manager with relevant experience handles all their investments in Asset Management Companies (AMCs). They specialise in all kinds of investment categories and can also provide investment advice to new investors. They can choose from various investment schemes and meet their investment objectives. In this case, fund managers invest money in different categories of market specialisation such as mid-cap, small, large, and multi-cap stocks which is a combination of all the three.
Following are the advantages investors receive from these funds:
- Professional management: Every person expects getting their work done from an expert or professional. When it comes to money, they choose experts who have in-depth knowledge of the market. AMCs set investment objectives for schemes and appoint experienced and expert professionals to invest money in equity. Fund managers spend quality time learning about the past and researching about the future performance of companies they invest funds.
- Portfolio diversification: Every investor investing in equity funds gets exposure to various stocks. Investments that are as small as INR 500 in a mutual fund scheme allows them to make a diversified portfolio. Portfolio diversification helps to reduce risk, which means they are less likely to lose money on their investments. Compared to direct investments in stocks, equity mutual fund schemes are affordable yet diversified models of investing.
- Liquidity: These schemes are liquid. They offer an opportunity to redeem investments at any time except for ELSS, which has a lock-in of 3 years. Investors can save all their investments in a time of need or at a Net Asset Value (NAV) higher than the time of purchase. They can invest in many more schemes during the market fall to buy units at lower NAV. Such liberty of investing and redeeming gives better control over the investments.
- Systematic or regular investments: Equity mutual funds give their investors the facility to invest small sums at regular intervals through systematic investment plans (SIP). SIP makes it simpler for the beginners to invest in them. These little sums invested regularly help in buying stocks. It also develops a regular habit of funding, which is useful in long term wealth creation.
- Tax benefits: If the investment period in equity funds scheme is more than one year, there is an exemption of tax liabilities on the capital gain. The Government of India also provides tax rebate for equity-linked saving schemes (ELSS) under section 80C of Income Tax Act 1961. Investors can get a deduction of up to INR 1,50,000 from the taxable income to reduce the tax liability.
Consider investing in mutual funds through digital banking apps as they are hassle-free and done instantly.