Equity fund investments are investments which are made in stocks or equity, representing ownership equity or share in companies. Equity Funds are used to diversify the portfolio of a mutual fund. Moreover, equity funds have certain benefits that no other funds have, these are:
- Diversified Portfolio: Equity funds have widespread diversification, with very small initial investment. This means buying stocks of different companies at different times in different economic sectors. This is helpful in ways that if a stock drops at the exchange the other stocks can make up for the loss.
- Capital Appreciation: This is one of the primary benefits of equity fund investments. As a company grows & earns profit, it usually chooses to reinvest the profit to grow through increasing market share, product developments, etc. With the increasing growth of the company, the market price of the stock increases, leading to capital appreciation for the investors.
- Dividend: Investing in blue chip companies, usually gives the investors a steam of regular income in the form of dividends. These companies usually pay out regular dividends in good & bad economic times, typically paid quarterly. Having a diversified portfolio will ensure a steady stream of income throughout the year. Different companies have different cycles, so investors are guaranteed a pay cheque every month.
- Liquidity: Stocks are traded in all major exchanges in the world, every day. This makes them a highly liquid investment. This means that an investor can sell their stocks whenever they want to. Stocks are not as liquid as your savings in your bank account, but they are a close second, much more than real estate. An investor can usually get their money from a stock sale within a week.
- No brokerage or commissions: usually fund houses charge bank fees, commission, brokerage etc., for their services which eventually reduces the profit earned by an investor. The more you pay, the less you get. One of the major benefits of equity funds is that, very often, an investor can avoid brokerage fees altogether. Over a long period of time, this becomes a major plus of investing in these types of mutual funds.
- Professional management: Investments are always surrounded by a degree of uncertainty. An investor is scared of investing due to lack of adequate knowledge & time, self-discipline, or investing experience. Mutual Funds fit in perfectly in this situation as they have an inherent design to tap professional expertise to manage investments which, in turn, relive the stress of the investor.