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Investing in equity funds is a great investment option. It will help you plan your future better as your wealth gets compounded over time. We have covered the following in this article:
It is crucial to know your risk tolerance before you could invest in a given investment option. You have to invest in only those options whose risk levels fall under your risk tolerance. If you are a first-time equity investor, you could consider investing in a hybrid fund whose exposure towards equities is not significant. Once you build confidence, you may consider investing in pure equity funds over time.
If you are looking for some stability with your equity fund investments, you may consider investing in an index or large-cap mutual fund. Index funds are a class of equity funds that try to emulate a stock market index’s performance, such as the NSE Nifty 50 or S&P BSE Sensex. This is made possible by investing in the same stocks that the underlying index is composed of. The popular stock market indices are constituted mainly by market leaders. On the other hand, large-cap stocks are the shares of companies that make the first hundred companies’ list by market capitalisation. As both large-cap and index funds invest primarily in stable companies, you will likely get consistent returns over time.
Aggressive investors may consider investing in small and mid-cap funds. Small-cap funds invest in equity shares of companies ranked after the 251st in the list of companies by market capitalisation. Mid-cap funds invest in shares of companies ranked between 101 and 250 in the list of companies by market capitalisation. As these funds invest in companies that have the potential to grow, your investments in these companies are also expected to grow over time. However, the risk associated with these funds is on the higher side, suitable only for aggressive investors.
You can save on taxes by investing in an equity-linked savings scheme (ELSS). These equity funds invest at least 65% of their portfolio in equities, and fixed-income securities constitute the portfolio’s remaining portion. By investing in an ELSS mutual fund, you can save up to Rs 46,800 in taxes by claiming a deduction of up to Rs 1,50,000 under the provisions of Section 80C. As ELSS mutual funds come with high growth potential, they offer you the dual benefits of wealth creation and tax deduction over time.
There are various equity funds to choose from. You have to base your investment decision around your objectives and risk tolerance. Also, you have to remember that the performance of equity funds is dependent on the market conditions, and you are not going to get assured returns. However, when you invest in an equity fund with a long-term investment horizon, you will likely get higher returns.