Equities are an investment option that is known to have the highest growth potential. If you can afford the risk that comes with it, equities can help you appreciate your capital, especially in the long term.
This is one of the reasons that make investing in equity mutual funds advantageous, too, By investing in equities, an equity fund enjoys similar attributes and potential. Moreover, it has advantages over investing directly in stocks also, as you don’t have to create a portfolio yourself and worry about managing it on your own. But the advantages of equity mutual funds don’t end there. Let us explore some of the advantages of investing in equity funds.
The highest potential for growth
Equities are arguably the investment option with the highest growth potential, given you can afford the risk that comes with it. Let us take the example of Sen sex to understand this better. Sen sex is a stock market index it tracks the top companies listed in India. The same has grown by about 75% in the last five years as of October 17th, 2022. This means if you invested in Sen sex in a similar time frame, you could have gotten similar growth. No other investment option shows this much growth potential.
At the same time, as said above, they have the highest risk among the investment options as well. One way to mitigate this risk is by investing in equities through a mutual fund or equity fund.
One other way to cope with the high risk is by managing it correctly. You will need to time your investments perfectly, monitor the performance of your investments closely, and make changes whenever necessary. If this sounds like a chore to you then equity funds will help you. They come with the expertise of professional managers who have vast experience in managing investments. They will ensure the investment is made during the appropriate time, monitor the portfolio so that nothing is missed, and finally, make changes to the portfolio when required. Your job as an investor is limited to finding a mutual fund that works for you.
Diversification can also help with managing the risk associated with an investment option like equities. Diversification means investing in a basket of different securities that have different characteristics so that your portfolio achieves a balance. This balance helps you keep your investment secure and, at the same time, appreciate the capital in the amount you want.
Nw, it could be extremely difficult for you to create and manage a diversified portfolio, especially since they also need constant monitoring. Equity funds are a lifesaver in this regard too. No equity fund comes only with securities. They also contain other securities like debt funds as well. Some equity funds have an equity cap as low as 65%. These factors give you diversification by default when you invest in an equity fund.
Stocks are an asset that has a higher level of liquidity. Stocks are considered as liquid as cash in some instances. Equity funds that primarily invest in equities come with similar qualities by default. It is easier to sell your units and divest them when you want them with equity funds.
Compounding is a phenomenon where the returns you earn from an investment option are reinvested into the corpus so that the compounded corpus will start earning returns. Equity funds enable compounding to your investments by default. This could have a significant effect in the longer time frame.
Investing in equity funds could be advantageous; the above points prove the same. At the same tie, ensure you invest according to your goals to make the best out of equity fund investment.