Many a times, people are unhappy with what they earn and are always in search of additional or side income. Those who understand financial planning are better at not only managing their money wisely but also in investment planning. If you too are unhappy with what you earn and looking to gradually grow your existing wealth, consider investing in market linked schemes like mutual funds. However, mutual fund investments are subject to market risks and hence investors should understand their appetite for risk before investing. Goal based investing is generally helpful because when you invest your hard earned money to achieve something, there are very thin chances of you backing out midway.
If you are someone who is keen on achieving long term capital gains and carries a moderately high risk appetite, you can consider investing in equity funds.
What is equity mutual funds?
Market regulator SEBI has categorized mutual funds for investors to be able to take an informed investment decision. As per new norms, every mutual fund house or asset management company can have only one scheme under same category. The categorization is done based on the scheme’s several unique attributes like asset allocation strategy, investment objective, risk profile etc. Equity schemes are one of the most sought after mutual fund category. Several investors prefer investing their hard earned money in equity schemes instead of investing in direct equities like the stock market.
Equity mutual funds are open ended schemes which aim at generating capital appreciation over the long term by predominantly investing in company stocks and equity related instruments. As per SEBI norms, an equity fund must invest a minimum of 80 percent of its total assets in equity and equity related instruments. This is why equity mutual funds are considered to be highly volatile in nature.
Why are several investors considering investing in equity funds?
Equity mutual funds are a favorite of several mutual fund investors because of their high risk rewards ratio. Since these funds are highly volatile in nature investors stand a chance of achieving higher gains when the markets are performing and at the same time, investors can even lose out on their investment amount in case of underperforming markets.
However, even in underperforming markets equity investors stand a chance of benefiting. If you start an SIP in equity fund, not only can you take advantage of falling markets, you might be even able to get closer to your targeted financial goal in the long run. A systematic investment plan (SIP) is a new and far more convenient method of investment as compared to one time lump sum investments. All an investor has to do is complete the one time mandatory KYC (Know Your Customer) formalities. Investors get to choose the monthly investment amount which they are comfortable with. Post this, every month on a fixed date a predetermined amount is auto debited from the investor’s savings account and electronically transferred to the fund.
SIP investors tend to benefit from fall markets through a unique investment technique known as rupee cost averaging. Since the monthly investment amount remains constant, in the falling markets when the NAV of the equity fund is low, more units are allotted to an investor’s portfolio. Similarly, when the NAV of the scheme is high, lesser units are allotted. This adjustment of investment risk and allotment of units depending on market fluctuations is referred to as rupee cost averaging.
Equity mutual fund investors who aren’t sure about how much money they need to invest in order to get closer to their desired corpus can refer to an online free tool like SIP calculator. However, if you are new to investing it is better to discuss your financial goals with a financial advisor before taking an investing in mutual funds.