These days we see a lot of mutual fund advertisements and marketing campaigns being carried out. The reason mutual fund companies are willing to spend so much on indoor, outdoor as well as digital marketing campaigns is that year after year, we witness large investments coming in both through SIP and lump-sum. Mutual funds are a pool of professionally managed funds that draw financial resources from investors sharing a common investment objective and invest the sum accumulated across various asset classes and money market instruments.
Equity funds are those mutual fund schemes that predominantly invest in equity and equity related instruments of publicly listed companies to drive the alpha. Let us find out some of the reasons why equity mutual funds have become a popular investment tool among investors.
Equity funds are diversified
Equity mutual funds invest in stocks of companies of different market capitalizations spread across various sectors and industries. A single unit of an equity mutual fund is an amalgamation of various expensive and credible stocks that can add growth and value to the investment portfolio. Investors need not curate a list of stocks and then invest in it as the equity fund manager who is actively managing the portfolio does that job. All the individual has to do is invest a fixed sum regularly and they get active risk management and a diversified portfolio of stocks.
Cost-effective investment option
To invest in other investment instruments, one needs to have a large investment sum at their disposal. This sum needs to be invested right at the beginning of the investment cycle. However, with equity mutual funds investors can start their investment journey with SIP by investing small, fixed sums at periodic intervals. Even if you plan to invest in direct equities, you need thousands of rupees as some stocks are really expensive. Through SIP, an individual gets exposure to all these stocks and that too, at an affordable rate. Investors can even use the SIP calculator to determine the total potential returns from their monthly SIP investments. Also, one can start investing in equity funds with an amount as low as Rs. 500 every month.
Save Tax with ELSS
One of the major reasons why equity mutual funds have caught the attention of investors is because they have realized the importance of investing in ELSS. Equity Linked Savings Scheme (ELSS) is a tax saving scheme that comes with a predetermined lock-in of three years and a tax benefit. Not only does ELSS has the shortest lock-in among other tax saving instruments under Section 80C of the Indian Income Tax Act, 1961 but it also gives investors a chance to generate long term returns by investing their money in the equity market. Every fiscal year an investor can seek tax exemption of up to Rs. 1.5 Lac by investing this sum in ELSS.
Equity Funds offer liquidity
Except for ELSS that has a statutory lock-in, all other equity mutual funds do not have any lock-in period. Investors can enter or exit equity fund investments at any given time, however, they may have to take a look at the scheme’s exit load, if any applicable. Investors can redeem their investments at any given time. They can either make a partial withdrawal by selling only a portion of the equity mutual fund units, or they can even redeem all their investments. Equity funds redeemed with 12 months from the date of investments are eligible for STCG tax whereas investments exceeding 12 months are eligible for LTCG tax. However, there are cancellation fees and investors can sell their equity mutual fund investments on any given day.
