For short term investments people often consider debt funds like liquid funds, overnight funds, ultra short term funds etc. When it comes to long-term investments, equity mutual funds are generally taken into account.
But what is it that makes equity mutual funds ideal for the long term? Why one should not consider equity funds for short duration? Let’s find out.
what are Equity Mutual Fund,
There are several product categories under the Mutual Fund gamut and Equity Funds are one of the most sought-after product schemes. An equity fund is an open-ended mutual fund scheme that invests the majority of its investible corpus in equity and equity-related instruments of companies. Depending on the nature of the scheme, its risk profile and its investment objective, an equity mutual fund can invest in stocks of companies belonging to different sectors and industries spread across the market capitalization. As per the guidelines of market regulator SEBI, an equity mutual fund should invest minimum 65% to 80% of its total assets in equities and equity related instruments of publicly listed companies.
What is long term investment?
When it comes to equity mutual funds, for tax purposes, any mutual fund scheme whose holding period is more than 12 months is defined as short term. However, one year may not be the ideal holding period for those who want to grow their investments in equity funds. One year investment horizon may not be sufficient for equity mutual funds. Equity funds are ideally considered for targeting life’s long-term financial goals such as retirement planning, wealth creation, buying a weekend home, pursuing your lifelong dream of opening a cafe restaurant, or any other goal that requires disciplined long-term investments. be needed.
Benefits of long term investment-
One of the main advantages of investing in equity mutual funds for a long period is the compounding effect. The power of compounding in mutual funds refers to the process where the initial investment amount of the investor earns profits and gradually, these gains start generating interest of their own. Compounding appreciates the value of your investment as your earnings are reinvested in the scheme and it allows your equity fund portfolio to grow over time. One of the easiest ways to benefit from the power of the compounding effect is to start your investment journey early so that you have more years to combine your investments into a commendable corpus.
Benefits of Investing in Equity Funds
Equity funds are a pool of professionally managed funds that offer proactive risk management. These are managed by a team of professional fund managers who actively handle the portfolio and trade with the underlying securities to allow the scheme to outperform its underlying benchmark.
equity fund
Offer diversification. They invest in a portfolio of stocks that have either growth or value to offer, thus reducing the concentration risk that direct equity investments invite. Investors do not need to have a large corpus for initial investment in equity funds. They can make small periodic investments through SIPs and gradually move closer to their financial goals in the long run.
What is SIP in Equity Fund?
To invest in equity funds, investors should either make a lump sum investment or they can take the SIP route. Also known as a systematic investment plan, SIP is a simple and effective way to build wealth over the long term. Investors can decide on an investment amount that they are comfortable with and then regularly invest that amount in an equity scheme of their choice till their investment objective is met. Investors can also use the SIP calculator to determine the total value of their future investments earned through disciplined SIP investments.
Mutual fund investments are subject to market risks, read all the documents related to the scheme carefully.