Equity funds are among one the most popular investment options in India. They are a great way to diversify your investment portfolio and can provide you with a great source of income.
An equity fund is a collective investment scheme, where investors pool some money and invest in a variety of stocks, to generate higher returns than they could possibly make on their own.
A share is essentially you owning a part of the company. The value of the share is dependent on two factors: growth and inflation. When you own equity in a company, you can receive additional shares of stock as a dividend, sell the stock to someone else, or sell your ownership position altogether.
Equity funds are investments in the form of mutual funds that deal in equity stocks. The name equity is used to represent stock (which is a kind of asset). Stocks, just like bonds and cash, are valuable financial instruments that you could invest in. In fact, they’re one of the most popular forms of investment there is global.
What is an Equity?
Equity is a financial instrument that represents ownership in a company. When you buy shares of stock in a company, you own a piece of that company. If the company succeeds, the value of your shares will increase, and you can sell them for more than you paid for them.
Equity is generally considered to be a high-risk investment because there is no guarantee that the value of your shares will increase or even remain stable over time. The value of your shares depends on the fortunes of the company whose shares you own.
Equity can be in the form of shares and depending on the number of shares you own, you are entitled to the dividends declared by the company for that period. It means that you own a part of the company, with risk and reward sharing as well. It is also referred to as share capital.
Types of Equity Funds
There are various types of equity funds, but the most popular include:
- Large Cap Funds: These focus on investing in large and well-established companies with a market cap above 100 billion rupees (INR).
- Mid Cap Funds: These funds invest in mid-sized companies with a market cap between 10 and 50 billion rupees (INR) that have the potential for future growth and high returns
- Small-Cap Funds: These focus on investing in small companies with a market cap below 5 billion rupees (INR) that have a high risk but also a high return.
- Multi-cap Equity Funds – These invest across all size caps and sectors, which means they’re great for getting exposure to different kinds of businesses as well as different regions within India.
- Sector Specific Funds: These funds focus on a specific sector of the economy like real estate, healthcare, fintech, education, etc.
How Can You Start Investing in Equity Funds?
There are many ways to begin investing in equity mutual funds and other equity instruments, but for most investors, the easiest way is through an online broker or through an investment advisor. The risk involved in investing in equity is greater than debt, but the potential for high returns is greater.
There are many options for someone who wants to begin investing in equity funds.
- One option is to open an account with a financial institution like a Bank. The investor will need to fill out forms and submit them along with their KYC documents. Once this process is complete, it’s possible to start investing by buying stocks and shares through the bank’s online trading platform.
- Another option would be to do so via direct plans offered by AMCs like Franklin Templeton Mutual Fund which allows investors to buy and sell shares directly from their website without any middlemen involved. This reduces the costs associated with brokerage fees or commissions paid on trades executed through intermediaries, such as with brokers or agents at stock exchanges like SENSEX or Nifty 50 index prices fluctuate daily based on economic factors like inflation rates; when these factors change too much over time.
- The next option is to use online platforms. Online platforms are the easiest option for investment because of the easy-to-understand processes and the ease of secure investment in just a few clicks.
Before you begin investing, it’s important to understand what kind of risk tolerance you have and how much money you can afford to lose, as well as how much you want to pay for your investments.
How to Invest in Equity Funds Through an Online Platform?
The steps to invest in equity funds online are simple. They are as follows:
- Research and understand equity funds and the risks involved before you start investing in them.
- You should understand your finance and risk capacity so that you can choose which fund is right for you based on your financial goals and risk tolerance level.
- Next, you need to open an investment account at an online platform or a bank where you can invest your money into different kinds of mutual funds such as equity funds. This will give you access to more than just one type of fund such as stocks or bonds; it also gives you access to thousands of them!
Benefits of Investing in Equity Funds
The main benefit of this investment is the potential for a higher return than what you would get from a fixed-asset investment like bonds or bank deposits. This means less risk (which results in better returns), so it may be the best choice for those who want to make some money but aren’t sure how much they should invest.
Another benefit of investing in equity funds in India is that they tend to offer more liquidity than other types of investments because they trade on public exchanges with buyers and sellers around the world.
The money you put into equity funds provides tax deductions, making it a smart option for both short and long-term investments.
With equity funds, you buy many stocks at once, which means that if one stock fails to perform well, it won’t affect your overall investment too much because other investments will be balanced out by better performance elsewhere.
One of the biggest risks associated with equity funds is market volatility, which can cause significant changes in value over time. This means that investors need to understand what types of investments they’re making and have a good idea about how much risk they’re willing to take on with each one.
Another risk involved with these types of investments is credit risk. If the company fails, it may not be able to pay back its debts; this could lead to bankruptcy proceedings against them by creditors. If this happens, then investors who own equity shares could lose their money completely or only recover a portion of it through litigation costs associated with such proceedings.
Equity funds or stocks and equity-based mutual funds are a way to invest long-term capital in stock markets.
It’s important to remember that investing in any kind of fund comes with some risks, and equity funds are no exception.
Market fluctuations can affect your investment at any time, so it’s important to be aware of that possibility before moving forward but it’s also important not to let that scare you out of investing in one of the most effective ways out there! They indeed are risky by nature, but not as much as pure stock markets.