Equity mutual funds are pooled investments that collect funds from numerous investors to amass a sizable corpus for use in buying various equities. As a result, equity funds are also known as stock funds. They are becoming increasingly popular because no other investment vehicle can produce returns as strong as those from stocks. Investors look forward to investing in equity funds because of their benefits despite certain dangers involved.
What are equity funds?
Equity funds, a class of mutual funds, are frequently referred to as “stock funds” since they invest in stocks or shares of companies. These funds, also called growth funds, seek to increase the investor’s capital. A minimum of 60% of the corpus of equity funds must be invested in equity shares of companies. At the same time, they may also devote a lower amount to other assets like debt and money market instruments.
Like any mutual fund, a fund manager manages equity funds and divides the assets following the scheme’s investment goal. The Scheme Information Document (SID) will provide information on the asset allocation percentage.
Who needs to invest in mutual equity funds?
Equity funds are pretty unstable and dangerous because they invest in equities. Therefore, they are perfect for investors with a high-risk tolerance and are prepared to invest for a considerable amount of time, at least for the next 7 to 10 years. Equity funds can produce enticing returns over a long period. Depending on the investor’s investment horizon and risk tolerance, they can choose which equity funds to invest in.
Tax Benefits of Equity Funds
On capital gains surpassing Rs. 1 lakh (long-term capital gains amount from equity-oriented mutual funds/equity shares) in a year without any indexation benefit, LTCG (long-term capital gains) tax is applicable at 10%. Equity fund investments are subject to a 15% STCG (short-term capital gains) tax if the seller pays a 0.001% STT (security transaction tax). If a fund is kept for more than a year, it qualifies for LTCG; if it is held for less than a year, it allows for STCG.
However, ELSS funds are distinct from average funds because they have a 3-year lock-in term. As a result, ELSS mutual funds can only be redeemed after this lock-in period. A tax-saving option under Section 80C is ELSS funds.
Reasons Why You Should Invest in Equity Mutual Funds
- Avoid letting money sit around
Never leaving money sitting around is one tip that all business owners and entrepreneurs should learn. Cash sitting in a bank is equivalent to it being wasted. This is so because savings or current accounts can never match the gains that investments can offer. Consider investing in equity mutual funds if you cannot finance the expansion of your own company or believe the moment is inappropriate.
- Expand your business without physically expanding it
You might desire to diversify your business as an entrepreneur. However, expansion and diversification demand a large amount of funding, personnel, and other assets. Equity mutual funds offer a chance for you to diversify and take advantage of a potential market without physically doing so if you cannot gather them.
- Accumulate resources for the future
There are several other methods of saving money for the future besides profit and reinvestment in the business. Businesspeople can increase their capital to accomplish long-term financial goals by investing in equity mutual funds, similar to ordinary investors.
- Attain personal financial objectives
In addition to your business objectives, you might also have financial objectives. You can invest in equity mutual funds using a portion of the business’s profit to achieve these objectives. Equities mutual funds offer market-linked returns and make more excellent investments than other fixed-income forms, such as bonds or fixed-term deposits.
Consequently, equity-based mutual funds have rapidly risen to the top of the most preferred investment vehicles list. This is particularly true for novice investors who want to explore alternatives to more standard investment options like fixed deposits and savings accounts.