Equity Mutual Funds

Equity Mutual Fund Scheme is an investment vehicle for achieving one’s long-term goals or for wealth creation. The risk and the returns potential vary from scheme to scheme. Here are a few reasons why one must consider investing in equity fund schemes.

• The primary benefit of investing in equity fund is capital appreciation. Potential for delivering inflation-adjusted returns and accumulate a significant corpus in the long- term.

• Equity mutual fund schemes are typically invested in portfolio of 40-50 stocks spread across different sectors, thus mitigates the riskiness of the investments relatively.

• Investment in equity mutual fund scheme may be one of the best choices to achieve long-term financial goals.

• Professional fund managers manage the investments, thereby save one’s time and help manage the challenges of stock selection, allocation to sectors, monitoring, and management.

Like all mutual fund schemes, equity mutual fund schemes pool fund from investors and invest a large portion of the corpus (at least 60%) in equity shares of the companies across sectors. The asset allocation is done according to the investment mandate of the scheme, meaning, a large-cap scheme will predominantly invest in large-caps, and a thematic equity scheme will invest in equities around a specific theme.

Equity mutual fund schemes are known to be riskier than other types of mutual funds for short term horizon, however, has the potential of relatively higher returns over medium to long term. And, this makes it a must-have investment in your portfolio.

Both the tax-saving equity mutual fund schemes and the regular equity funds have the same tax implication. If the investment is redeemed before 12 months, the returns earned are treated as short-term capital gains and are taxed at 15%.  For investments that are redeemed after 12 months, the returns are considered as long- term capital gains, and it is taxed at 10% if the returns earned is more than Rs. 1 lakh in a financial year.

ELSS (Equity Linked Savings Scheme) or tax-saving equity funds is one of the most efficient tax-savings schemes under Section 80C of the IT Act, 1961. It has the shortest lock-in period of three years.

Investments in Equity Mutual Fund Schemes may be made in two ways – lump sum investment or through SIP (Systematic Investment Plan). In lump sum route, one may invest through a single payment, whereas, under the SIP mode, one may invest periodically (monthly, quarterly, half-yearly or annually etc.) based on the scheme one chooses to invest.

SIP is a process for a disciplined investment of a certain on a pre-decided date in a specific mutual fund scheme, regularly over a period of time.