An equity mutual fund invests in equity related investments that have the potential to grow, but which may involve a higher amount of risk. Generally, an example of an equity mutual fund is one that has its underlying portfolio in companies with a proven track record of great revenue growth or younger companies with potential. Equity mutual funds follow different styles such as growth, blend and value funds and comprise the primary categories of equity mutual funds.
An equity mutual fund scheme aims to provide capital appreciation over the medium to long- term. Such schemes invest minimum 65% of investments of their funds in equities or equity related instruments.
5 WAYS TO CHOOSE AN EQUITY MUTUAL FUND
- Risk appetite: If you are looking for comparatively less volatile equity fund your best option may be a diversified large-cap fund. If you enjoy taking higher risks, you may go in for mid-cap or small funds.
- Make the right choice: You should compare returns of various growth plan over several time periods – one, three or five years – and narrow in on one that performed the best during these periods. You can additionally compare between Growth Plan VS IDCW (‘Income Distribution cum Capital Withdrawal’).
- Check the costs:Investing in equity mutual funds covers costs, like the expense ratio. The Expense ratio involves management, marketing, and administrative expenses. A high expense ratio will lower your returns, so choose a growth fund that has the lowest figures.
- Time frame: Stock markets are more volatile in nature. One needs to be invested for the long term to reap the real benefits. If you are interested in short term investments, a debt fundcould be good option.
- Consistency of performance:The performance of equity mutual fund hinges on the consistency of funds across market cycles.
- In a growth plan, the profits remain invested in the scheme. Over a long period, it helps in capital appreciation. Growth plan NAV will always be higher than the IDCW option because on distribution of available surplus the NAV of the scheme is reduced to that extent.
- In IDCW, the profits may be dispensed partially or fully at the discretion of the fund manager / AMC/ Trustee.
- If investors prefer capital appreciation or long-term wealth creation, they should invest in growth option of the mutual fund scheme.
- If the investors aim for cash-flows from their investments, then they may opt for IDCW option.
To conclude, equity mutual funds are best suited for those with an aggressive risk appetite and a long term vision.
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