5 Reasons To Invest In An Equity Fund

GAURAV KANSAL 11:20 Best Investment plans , Equity Funds , Investment Plan , mutual funds , Savings plan , sip , slider , Tax Benefits , Tax Saving Plans No comments

5 Reasons To Invest In An Equity Fund

5 Reasons To Invest In An Equity Fund

Skeptical about equity funds? It is actually the most beneficial and opportune way for a retail investor to get an exposure to stocks. If you are unsure as to how mutual funds are advantageous,

A convenient way to participate in the India growth story

Benjamin Graham, also known as the father of value investing, had remarked that making money depends on the "amount of intelligent effort the investor is willing and able to bring to bear on his task". He was referring to stock analysis. According to him, an intelligent investor is an individual who has the time, energy and capability to conduct his or her own investment research.

category of intelligent investors. Even if one does possess the skills, capability and knowledge to manage their own investments, the issue of time is a valid one. In such a case, it makes logical sense to leave the specific investment decisions to an asset manager and his team of analysts. Restrict your effort to looking for a good fund.

Fire proofs savings against inflation

According to data released by the Statistics Ministry in New Delhi, the Consumer Price Index, or CPI, rose 7.31% in June and 8.28% in May. No one has to spell it out that inflation corrodes your savings. For instance, an investment in fixed deposits assures you of a definitive return, currently the 1-year return on a bank fixed deposit is between 8-9%. Take tax and inflation into account, and your investment would have defeated its purpose.

Equity is one asset class that manages to outperform inflation over time. And, believe it or not, it does have a tax break. The tax on long-term capital gains is zero, which means you pay no tax on the return you earn from your investments if you hold it for at least a year. In the long run, this amounts to a huge savings. In fact, stocks and equity-backed investments (equity mutual funds and equity oriented balanced funds) are the only asset classes which are completely exempt from tax on long-term gains. So let's say you invested in Franklin India Prima Fund a decade ago. Your annualised return of 20% not only beats inflation hollow but you pay no tax on the return. So despite the volatile markets over the past decade, you would still be a winner.

Huge opportunity

There are thousands of funds from 40 asset management companies, or AMCs, that are available to the retail investor. So there is no dearth of options. However, be wise and pick up funds which have a good track record and a good pedigree.

Within equity, the choices abound. You can opt for a growth fund or a value fund, or a fund that combines both investing styles. For periodic payments, take the dividend option or else, stick with a growth one. There are funds classified on the basis of sectors - auto, infrastructure, FMCG, pharma; as well as market-cap. There are international funds too that offer a global exposure to a portfolio.

Besides equity, there are also debt funds and gold funds and hybrid funds that combine asset classes. So one can diversify their entire portfolio and conduct their asset allocation by resorting to mutual funds.

No strain on your pocket

By investing just a tiny amount, you get a ready-made, well-diversified portfolio. Let's say you start a monthly systematic investment plan (SIP) in UTI MNC Fund. By investing Rs 1,000/month, you instantly get a portfolio of around 40 stocks across more than 10 sectors. The selection is made by the fund manager who will invest after conducting his research on which sector and individual stocks to invest in. Towards this, the investor will be charged an expense ratio, which in this case is 2.57% of the assets of the fund. Do note, the net asset value, or NAV, declared is post deduction of expense.

Once you put an SIP in place, the amount that you decide to invest will automatically be deducted from your bank account and invested at the date pre-selected by you. With no effort on your part, your savings will be channelised into the fund of your choice.

Liquidity

To redeem your investments, you will have to fill up a redemption form. If you submit it before 3pm, the NAV of that working day is applicable. Post that time, the units will be redeemed at the NAV of the next working day.

Once the redemption request is successfully received and verified, it takes anywhere from 2 to 4 working days for the proceeds to be credited to the registered bank account.

Open-ended schemes can be redeemed anytime. If you want to sell your units in a close-ended fund before the tenure of the fund has been completed, you will have to sell them on the stock exchange, where liquidity is an issue. Some close-ended funds offer a redemption window periodically.