Many investors want to make mutual funds a part of their investment strategy but do not know where to start. Choosing the right equity mutual fund may involve judging the fund on various parameters, including its past performance, its investment strategy, management history, expense ratio, risk factors, and so on and so forth. Like all investment avenues, mutual funds also carry a certain amount of risk. They have the potential to give you some return on your investment, but mutual funds do not guarantee any return.
What are mutual funds?
Mutual funds, like all investment instruments, provide investors with an opportunity to earn some returns from their investments. Mutual fund houses pool money from investors and invest that pool of funds in various capital assets. These are professionally managed funds that predominantly invest in equity, debt and money market instruments etc. Mutual fund investments are exposed to market volatility, and hence returns from mutual fund investments are never guaranteed.
What is Equity Mutual Fund?
Equity fund is a type of mutual fund that mainly invests in shares of listed companies. As the name suggests, an equity fund invests in the equity market. These types of mutual funds invest in company stocks of varying market capitalization. The growth and performance of a company can impact the performance of equity funds that have invested in that particular company. Before we proceed further, investors should be aware of the fact that equity investments are exposed to market volatility. Therefore, direct/indirect investments made in the equity market are subject to market volatility, and returns are never guaranteed.
Equity funds can be one of those tools that can help investors take a step ahead in reaching their financial goals.
If you are someone who is going to choose your first
Equity Mutual Fund
But don’t know where to start, here are some suggestions that might be of some use:
- Identify your investment goal: The very first question you need to ask yourself is, ‘Why am I investing? What is my investment objective?’ Are you adding mutual funds to your investment portfolio to help build a corpus to secure your child’s overseas education, or are you investing to build a retirement corpus? Or is it to buy a weekend house? Always have a defined investment goal. This can help you understand how much investment you need to achieve your investment objective.
- Identify your risk appetite: Once you have a defined goal, the next question you should ask yourself is, ‘What is my risk appetite?’ Are you willing to invest in an equity fund that has a moderately high risk profile, or would you like to opt for a low risk mutual fund? Identifying your risk appetite can help investors choose the right equity mutual fund.
- Keep an eye on expense ratio: Expense ratio is nothing but the cost of owning a fund and this can have an impact on the returns provided by the scheme. Hence, you should also be aware of the expense ratio charged by the scheme.
An example to help you understand better – If the expense ratios of two funds are 0.50 percent and 1.50 percent respectively, the fund with the higher expense ratio may reduce the investor’s profitability (however, this may not be true every time). Is). These expense ratio figures may seem trivial now but can prove to be a major hindrance to your fund’s growth in the future.
- Diversify Your Mutual Fund Portfolio: Try and not limit your investments to one type of mutual fund scheme. As per the re-categorization circular of SEBI, equity schemes are further sub-classified into various categories. Make sure you try to maintain a diversified mutual fund portfolio. Diversification can help investors balance the risk of their portfolios.
Investing in Equity Funds or any Mutual Fund is not an overnight process. Investing with a long-term objective can help investors take a step closer to their investment goals.
“This is an investor education and awareness initiative by Axis Mutual Fund. Investors need to complete a one-time KYC process. For more details visit www.axismf.com or contact us at [email protected]. Investors should only Should deal with registered mutual funds, details of which are available at www.sebi.gov.in – INTERMEDIARIES/MARKET INFRASTRUCTURE INSTITUTIONS section. For any grievance redressal, investors may call us at 1800 221 322 or write to us at customerservice@ axismf.com or register a complaint on SEBI Scores Portal https://scores.gov.in.
Mutual Fund investments are subject to market risk. Investors are requested to read the offer document carefully.