The popularity of equity investments is increasing leaps and bounds and there are more discussions and comparisons circling them now. No other investment paths offer scope for such high returns as that of equity funds.
Once you know How to invest in equity mutual funds you can get started. You have no idea how equity funds can change your life for the better. Anyhow, this post is going to acquaint you with equity funds.
What is an Equity Fund?
The purpose of equity funds is to generate high returns by investing in the shares of business of different market capitalization. They produce higher returns than that of debt funds or fixed deposits. How the business performance results in profit or loss decides how much an investor can make on the basis of his shareholdings.
How this equity do Funds work?
An equity fund invests sixty percent or more of its assets in equity shares of the business in varying proportions. This has to be in line with the investment mandate. It could be a purely large-cap, mid-cap or even that of the small-cap fund or a blend of market capitalization. Moreover, the investing type or style may be value-oriented or that of growth-oriented.
After assigning a major portion of equity shares, the remaining amount is going to be with debt and money market instruments. This is to take care of unexpected redemption requests as well as bring down the level of risk to some extent. The fund manager makes purchasing or selling decisions to take benefit of the changing market movements and earn maximum returns.
Who should do investment in Equity Funds?
Your decision to invest in the realm of equity funds must align to your risk tolerance, then investment horizon and even the ultimate goals. Generally, in case you have a long-term goal (for example, 5 years or more), it is better if you go for equity funds. It will also cater the fund plenty of time to survive the market fluctuations.
For the budding or new investors
In case you are a budding investor who wishes to have exposure to the stock market, then huge-cap equity funds may be the correct choice. These funds invest in equity shares of the top hundred companies in the stock market. These well-established businesses or companies have been historically catering stable returns over the long-term.
For market enthusiastic investors
If you are well-versed with the market pulse but wish to take calculated risks, you could think of investing in diversified equity funds. These invest in shares of the businesses or companies across market capitalization. These give the best combination of high return and lesser danger as compared to that of equity funds that just invest in small-cap/ or that of mid-caps.
Thus, you can think of investing in equity mutual funds once you take into consideration the discussed points. After all, it is all about what you choose and why you choose it. Whether huge or small or middle caps; investments has to be as per your preference and aims.