What are Equity Mutual Funds?

5 Key Features of Equity Mutual Funds

introduction

The horizon of Equity Investments is rising progressively. They are becoming more and more popular day by day. No other investment vehicle offers scope of such high returns as Equity Mutual Funds. In this article, we will discuss what are equity mutual funds, What are the key features equity mutual funds?

What are Equity mutual funds?

• Equity mutual funds primarily invest in stocks to get the benefit from rising stock prices in the capital market. The returns on equity mutual funds are in the form of dividends as well as capital gains. Equity funds give an investor an indirect ownership in the company, whereas in debentures one gets just a fixed interest.
• Investments in Equity funds should be done for long term goals. For eaxmple, for retirement, child education etc. as mostly these funds are highly volatile in short duration.
• Equity Mutual Funds (Including ELSS category) have about 1/3rd of the total Asset under management in Indian Mutual Fund market. There are wide choices before investors, with about 500 schemes to choose from.
• Example of Equity Mutual Fund:HDFC Equity Fund (A Multi Cap Fund) is currently the biggest Equity Fund with asset under management of close to Rs. 21k Crores in Indian market and has given approximately 18.6% returns per annum since launch in 1995. (as of February 28, 2019). For the detalied analysis of the fund, Refer https://mfyadnya.in/

key features of EQUITY MUTUAL FUNDS

1. professional Management

• Money invested in equity markets is managed professionally by fund managers. Most of them regularly beat their fund’s benchmarks.
• The credit for outperformance or underperformance of a mutual fund scheme lies with the fund manager (and his research team).

2. Cost of investment

• The frequent buying and selling of equity shares often impacts the expense ratio of equity funds. Expense ratio states how much you pay a fund in percentage terms every year to manage your money.
• Currently, SEBI has fixed the upper limit of expense ratio at 2.5% for equity funds. It is also planning to reduce it further. A lower expense ratio, of course, translates into higher returns for investors.
• Most of the established fund schemes will have lower expense ratio. Average Expense ratio of Equity funds (based on type) is between 1.8-2.2%
• An equity mutual fund has the highest charges as it requires most research. The index mutual fund has the lowest charge as it simply follows the index.

3. Holding Period

• When you redeem units of equity funds, you earn capital gains. These capital gains are taxable in your hands.
• The rate of taxation depends on how long you stayed invested in equity funds; such a period is called the holding period.

4. 80C Tax Exemption

• ELSS enables investor to enjoy benefits of capital appreciation as well as tax benefits. ELSS is the only tax-saving investment under Section 80C of the Income Tax Act that gives you equity exposure (other than NPS).
• With its shortest lock-in period of 3 years and high return potential, ELSS has a good track record . You can invest in small but regular installments or a lumpsum as per your affordability.

5. cost efficiency and diversification

• One of the primary goals of investment must be diversification of risk and Mutual Funds accomplish this goal well.
• By investing in equity funds you can get exposure to a number of stocks by investing a nominal amount.
• With a single fund, you invest into various assets and many corporations. If one stock or asset goes down, there are others that may compensate for it.