Even though the pandemic’s unpredictability continues to frighten economies worldwide, the domestic equities market has seen a significant rise in recent years. Despite the fact that the stock market took a hit due to the increase in COVID-19 cases, the bulk of stocks has made significant gains from their March 2020 lows.
Investors continued to invest in Indian shares during the market slump. Mutual funds in the United States followed suit. Over the last two years, most equity-oriented funds have produced excellent results.
The Association of Mutual Funds of India (AMFI) recently released statistics that show significant growth in the number of mutual fund folios. The unique mutual fund accounts, not the individual investors, are recorded in the folios. That means a person can have many folios, and most people do. On the other hand, the increase in folios is a good indicator of retail interest in mutual funds, particularly equities funds.
What is Equity Mutual Funds?
To create returns, an equity mutual fund invests primarily in the stocks of numerous companies. Compared with other types of mutual funds, equity fund investments are associated with a higher level of risk. Furthermore, there is no such thing as a “one-size-fits-all” equity fund. There are many different types of equity funds, each with its own investment objective, that must be matched to your risk profile.
How do Equity Funds work?
Equity mutual funds invest a significant amount of their assets in equity shares of various corporations in specific proportions. This asset allocation is determined by the type of equity fund and how well it matches the investment goal.
The asset allocation can be done entirely in stocks of small-cap, mid-cap, or large-cap enterprises, depending on market conditions. The remaining funds are invested in debt and other money market funds after a major portion are allocated to the equities section. This helps to reduce the risk factor and deal with last-minute redemption requests.
4 Reasons why equity mutual funds are popular in India
Easy Liquidity
You have complete control over the purchase and sale of the units. You can withdraw your money from an open-ended equity fund at any moment. The entire process of redeeming your equity mutual fund investment and collecting the proceeds in your bank account can take three days to a week.
Customizability
Another key factor contributing to mutual funds’ appeal is the nearly unlimited variety of products available. There is a mutual fund to match your needs, regardless of your investing goals or risk tolerance, ranging from high-risk, high-reward stock funds to low-risk funds that give slower, more consistent gain and everything in between.
Management of funds
The AMC hires specialists and professionals to oversee and manage the monies raised from investors. These professionals are well-versed in the ins and outs of stocks and possess the necessary knowledge to invest funds in the correct location at the appropriate time. That’s helpful because it’s difficult for an individual investor like you or me to manage multiple investments simultaneously.
Diversification
In investing, diversification is the aim of the game because it enables the investor to distribute his absolute risk across various investments. To achieve optimal diversity in a self-managed portfolio, the investor or his financial advisor must conduct extensive research and keep track of several investments in various industries and marketplaces.
For example, you should add extremely stable bonds to your portfolio to balance out highly volatile stock holdings. While extremely volatile stocks might result in large profits, they can cost you a major portion of your investment cash. In contrast, government or highly rated corporate bonds are unlikely to lose principal value and are guaranteed to pay a predetermined sum of interest each year.
Conclusion
The best equity mutual funds allow you to invest in various equities, diversifying your portfolio. You can invest in multiple equity stocks with a small sum of money.
If you decide to invest in equities mutual funds, you will reap a plethora of rewards. You should also be aware that investing in equity mutual funds is risky. Although it is true that not taking any risk at all is a greater risk when it comes to investing in the stock market, the same is true when it comes to investing in equities mutual funds.
Furthermore, deposit and debt fund investments will not offer you sufficient returns to keep up with rising inflation. As you may know, equity investments pay off handsomely in the long run, so AMFI is encouraging young brains and investors to invest in mutual funds for a brighter future.
