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Equity Funds

Equity Funds: Definition

The most popular question which new investors ask is, “What are Equity funds?” The equity funds are a kind of mutual fund by which one can buy ownership in a business. Hence, the term equity is used. These are in the form of publicly traded common stock. Sometimes the ownership is in the form of private equity funds which are a part of a private company not traded on the stock exchange.

Equity funds are different from bond funds or money funds. The aim of equity fund is long-term growth through capital gains. Some equity funds may focus on a specific sector of the market. The size of the equity fund is determined by the market capitalization and investment style. They are also categorized by whether they are domestic or international.

Why are equity funds ideal investment?

Equity funds are an ideal investment option for small investors. It is also considered as a practical investment for most of the people. The attributes which make equity funds most suitable for small investors is low risk, small capital for investment and diversified portfolio.

According to Nifty returns of past 15 years, Indian stock market has returned about 16% on an average in terms of increase in share prices or capital appreciation each year.

Another reason why equity funds are an ideal investment option because of a sheer number of funds available. As of 2015, there were 4500 different kinds of funds available in the market. The funds are available to match every risk profile and investment aim that one has.

Advantages of Equity Linked Savings Scheme

Equity Linked Savings Scheme is a major tax saving mutual fund along with high returns. It is also the most popular option for savvy investors. If you are ready to take some risk, then Equity Linked Savings Scheme is the right plan for you. Let us see below some of the advantages of the Equity Linked Savings Scheme.

Similar risk to investment in shares

An ELSS invests in share market and has to face the fluctuations of the share markets. As Equity Linked Savings Scheme goes under 3 years of lock down period, one might get fewer returns than the amount invested. Hence, one must be prepared for such an outcome.

High potential of returns

Despite the risk of loss, Equity Linked Savings Scheme also has high return potentials. In a long term, the investment in shares might give high returns. In the last 20-25 years, Equity Linked Savings Scheme has given high returns to investors.

Investment with SIP is possible

SIP is the most suitable for Equity Linked Savings Scheme as it assures the required investment amount for tax saving. SIP does not always give the desired results but reduces the risk factor.

How to choose Equity funds?

The investors should choose equity funds which are doing well in the bear markets also. One should know how a fund behaves and performs when the market goes bad. This allows one to understand the maximum damage caused by a fund.

As an investor, you should also look for consistency rather than point to point returns. Trailing the returns can give a wrong picture as they will show how a fund has performed lately. Before investing, one should look over 3-5 years of performance.

The aim of the investment should be to stay invested for a long period of time. People feel that investments should not be done during peak times. But, if invested during peak times and continue for a long period of time, it will give good returns.

The price of equity fund is based on the fund’s net asset value fewer liabilities. A diversified portfolio means the less negative effect on the adverse price change on the portfolio.