Reasons You Should Invest in Equity Mutual Funds

Have you ever wondered that with the rising expenses in the current economy, would your income alone be sufficient to fulfill your future needs? Is there sufficient time available for you to invest in a good scheme to build a corpus for a rainy day? The good news is that there are just such schemes that will help you achieve your financial goals – equity mutual funds.

The best part about these schemes is that they invest in equity and equity-related products, which are known to have the highest rate of return. However, before you go ahead, you should know that high returns also come with higher risk, as compared to debt or hybrid funds. Despite the returns being dependent on market volatility, there still are some very good reasons to choose equity schemes. Here’s a look at some of them.

1. Easy on your savings

You don't need huge capital to start investing in equity funds. You can start with as little as ₹500 a month via the SIP mode. The payment could be deducted directly from your bank account, making the entire experience totally hassle-free and disciplined.

2. Capital appreciation

One of the key benefits of investing in equity-related schemes is that they are the best hedge against inflation. Bank rates might provide some appreciation to your investment but during times of inflation, they fail to perform. On the other hand, the returns on equity schemes remain superior. However, be sure to invest with a long-term financial goal in mind.

3. Diversification is Possible

Instead of investing a large sum in a group of stocks belonging to the same sector, equity schemes provide a diversified portfolio. This helps in reducing your risk, since when one sector underperforms, others might flourish.

4. Tax benefits

These funds, such as ELSS (Equity Linked Savings Scheme), provide tax exemption of up to ₹1.5 lakhs under Section 80C of the Indian Income Tax Act. Holding an equity scheme for a period of 12 months from the day of acquisition could grant you this tax exemption. If you sell your units before the 12 months are over, you will be liable to pay tax on short-term capital gains at 15%.

5. Liquidity

If you wish, you can easily exit a SIP whenever you want to. The amount you have accumulated would be transferred to your bank account within a week. If your SIP has matured, the transfer would take place within 3 days.

There are various other benefits offered by equity mutual funds that make them the best schemes for capital appreciation. However, remember that market volatility does affect the returns, they are more suited for those with a higher risk appetite.