As the name suggests, equity funds invest primarily into stocks. Though volatile, these funds have the potential to generate higher returns in the long run. Investing in these funds offers several benefits to investors. Read on to know the advantages of investing in them.

  1. Generate Inflation-Indexed Returns
  2. Among all the asset classes, equities have the potential to deliver inflation-adjusted returns in the long run. Note that inflation is one of the biggest hindrances in wealth creation as it erodes the value of money with time.

    Therefore, it’s important to invest in financial instruments that can help you beat the effects of inflation, and this is where equities are your best bet. They aid you in countering inflation and compound your wealth.

  3. Garner a Sizeable Corpus Long-Term Life Goals
  4. Long-term goals such as retirement and higher education of children warrant accumulating a large corpus. With pension becoming a thing of the past and education inflation increasing, it’s important to build a large buffer for the above-mentioned goals.

    This is possible by investing in equity mutual funds. Through systematic investment plan (SIP) in an equity mutual fund, you can reach your target. For instance, even a modest SIP of Rs. 5,000 in an equity fund offering annualised returns of 12% for a period of 15 years can help you garner a corpus above Rs. 24 lakhs. Also, when you remain invested for the long term, the risk quotient goes down manifold.

  5. Diversification
  6. Investing in equity funds give you diversification, one of the core principals of investing. Equity funds invest in stocks of different companies, which results in diversification. This gives you the much-needed cushion during market swings.

    Thus, if the stock of one company goes for a toss, the other one makes up for it. If you observe closely, you will notice that an equity fund invests in stocks of multiple companies belonging to different sectors. Hence, if one sector is experiencing a slowdown, others prevent a major slide.

  7. Tax Benefits
  8. Investment in equity funds such as ELSS or equity-linked savings scheme qualify for tax exemption under section 80C of the Income Tax Act, 1961. Under this section, investments up to Rs. 1.5 lakh in ELSS qualify for tax exemption.

Thus, ELSS help you gain on two fronts – gain from the high return potential of equities and bring down tax liability.

You can invest in equity funds either a lump sum or a small but fixed amount each month through systematic investment plan (SIP). Irrespective of the mode chosen, make sure to remain invested for a long period to make real gains.

Explore Various Mutual Funds here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product.  Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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