For some, investing in equities seems a daunting task, while others take to it like fish to water. Most people say that they are interested in equities but lack the knowledge and are often mired by myths and skewed perceptions. Some even call it a game of chance. Such misconceptions have led to potential investors shying away from an otherwise lucrative and scientific investment avenue.
Equity, as an asset class, has a long term track record of returning inflation-beating returns. Investing in equities over a long-term can help achieve long-term financial goals. There are many other benefits of investing in equities. Here we list some of them.
- Potential for Inflation beating Returns over long term
Investing in the stock market certainly gives you the opportunity to get long term capital appreciation, although this comes with an element of risk. But then, every asset class carries some form of risk.
While past performance is not a guarantee for future returns, over the years, equity as an asset class has given good returns. However, just by investing in equity, one does not get a guarantee of high returns. You need to remain patient and keep reviewing your portfolio while maintaining the long-term time horizon.
- Diversification of Risk
Among mutual funds, a liquid fund is a low risk product, while equity funds carry a higher level of risk. However, most diversified equity mutual funds, based on their investment objective, hold scrips of 30-40 individual companies. Hence, when you invest in an equity fund, you automatically achieve diversification.
For example, the IDFC Focused Equity Fund, which is an open-ended equity scheme, invests in maximum of 30 stocks with multi-cap focus.
- Dividend Income
There certain mutual fund schemes that offer dividends. While the amount or frequency of dividends is not guaranteed and is subject to availability of distributable surplus, it can help investors with additional and intermittent cash flows. However investors must note that after payout of dividend, NAV of the dividend option falls to the extent of dividend payout and statutory taxes.
- High Liquidity
Most equity investments in mutual funds are liquid. In case a need arises, one can redeem funds in 2-3 working days. Moreover, since equity funds are held in terms of units, one can order partial redemptions based on the amount one needs.
Generally, there is no exit load if funds are redeemed after a year of unit allotment. You can easily redeem them online and are based on the NAV on the day subject to cut-off timings. The money is paid to the registered bank account.
- Low Capital Requirement
Unlike asset classes like real estate, bullion, or fixed deposits, equity mutual funds do not warrant lump-sum amounts. One can start investing with as little as Rs. 500 a month. The low threshold allows investors from all backgrounds to participate in mutual funds. With the age of pre-defined pension benefit all but over, equity investment can not only generate inflation-adjusted returns but also help you build a sizeable corpus for essential life goals like retirement.
IDFC Mutual Fund offers you an array of equity, debt, and hybrid funds to suit your financial goals. These offerings help you move a step closer to fulfilling your financial goals. Subscribe to our page for more insights on investments and personal finance.
Visit www.idfcmf.com for more details.
