How Do Equity Funds Work? Advantages Of Equity Fund Investing

How Do Equity Funds Work? Advantages Of Equity Fund Investing

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Equities are a favourite investment of many. There could be several reasons, but the most important is its potential to grow. Equities are considered to have the highest potential to grow, especially in the longer term. This is underlined by the growth of Sensex and Nifty, two stock market indexes that track the performance of the top companies in India. They had grown over 70% in the last five years as of mid-October, 2022.

But is investing in equities suitable for a retail investor? Will they suit beginners? Is equity funds an alternative, and if yes, how do they work?

Let us answer all these questions regarding equity funds through this artic

Investing in equities

Investing in equities directly is something that requires a higher level of market knowledge. To begin with, you should have a clear idea of what you are trying to achieve from your investment. Then, you should know well about the amount of risk you can afford. Once you have these two points figured out, you should now create a portfolio that matches your investment goals and risk appetite. This requires you to do a thorough market analysis.

Once you have that figured out, you will have to time your investments perfectly so that you can get the best out of your investment.

But does your job end there? Not actually! You now have to monitor your portfolio closely to make sure the same stay relevant. You will also need to make changes to them whenever required.

While the above points are certainly doable, and many investors do it and find success daily, it could be a little too much to ask from every retail investor. You will need to understand the markets clearly and also have to keep yourself updated.

An alternative here is mutual funds. But how do they work? Let us explore

What are equity mutual funds?

Mutual funds are an equity option where an experienced fund manager pools money from different investors to invest in a portfolio that is designed according to a theme. The theme could be based on anything from the characteristics of the fund to where its investment focus. An equity mutual fund is a mutual fund that focuses on equity investments. There are equity funds with up to 90% equity-focused portfolios.

Investing in an equity fund makes investing in equities easier. Here, a fund manager will design the portfolio, invest in them promptly, and manage and make changes to the portfolio whenever required. Your job is limited to finding an option that works for you and then investing in it. This makes investing in equities a lot easier. But the advantages of investing in equity funds don’t end there.

Advantages of equity fund investing 

  • Diversification is a key element that every portfolio demands. It ensures that your portfolio is kept as risk-free as possible. This is extremely important when you invest in equities, which could be highly risky.
  • Investing in equity funds is beneficial for wealth creation as it comes with the highest growth potential. At the same time, the high return potential of equities also comes with higher risk; hence, you should keep your risk appetite in mind while choosing your choice of equity fund.
  • Stocks are one of the investment options that have high liquidity. Equity mutual funds have similar attributes since they invest in equities. 

Conclusion

As the above points prove, equity funds can be a beneficial investment option. But, at the same time, ensure you keep your goals and risk appetite in mind while investing to make the best out of it.

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