Why are Equity Mutual Funds Becoming Highly Popular in India

Introduction

Snehal began working in an MNC. She is keen on building a corpus for her future needs. For this, she was looking for various options that could give her higher returns with safety. Snehal consulted her friend Nikita for advice, who is an investor too. Nikita suggested her equity mutual funds. Snehal was unsure because of the high risk associated with the investment, but Nikita made her understand the benefits of investing in equity funds. So, let's know further what made her take the decision.

What is Equity Mutual Fund?

Equity Mutual Funds is one of the several mutual funds' schemes that invest prominently in stocks of companies listed on the stock exchanges. It provides higher returns than debt funds and deposits, and hence it is considered one of the high-risk investments in mutual fund space. It is tough to invest time and energy to learn about the ever-fluctuating stock market; therefore, the equity mutual funds fill the gap for investors ready to take relatively higher risks for higher returns.

The AMCs (Asset Management Company) collect the funds from investors with the goals and objectives decided beforehand by the mutual fund in the pool of money they manage. That pool of money is then invested in various financial instruments like bonds, equity shares, commercial papers, etc. One such investment is equity, and the money collected in equity mutual funds is invested predominantly in equity and instruments related to equity.

The fund managers invest in different companies with varying market capitalization for better returns, and thus equity funds may have a higher risk. Compared to other funds that invest in bonds.

Why do many people choose Equity Mutual Funds

As you may have read recently, the equity mutual funds net monthly inflow in May 2021 stood at Rs 10,083 crore. The highest ever was recorded in July 2021 by the AMFI (Association of Mutual Funds in India) at Rs. 22,583 crores. Mutual Funds sell subscriptions to new investors. Every day, there are new subscriptions and redemptions. Net inflows accrue to assets under management after accounting for redemptions. The total AUM (Asset Under Management) stood at an all-time high of Rs. 36.6 lakh crore by the end of August 2021.

You may be wondering as to why everyone is investing in equity mutual funds? So here are some reasons equity mutual funds are a popular way of investing for many in India:

1. Management of Funds

The AMC appoints professionals and experts to control and manage the funds collected from the investors. These experts know the ins and outs of the stocks and have the required knowledge to invest the funds in the right place at the right time. That is useful because it is challenging for an individual investor like you and me to manage many different investments simultaneously.

2. Easy Liquidity

You have the flexibility over buying and selling the units. In an open-ended equity fund, you can get the invested money back anytime. The whole process of redemption of your investment in an equity mutual fund to receiving the amount in your bank account may take time, starting from 3 days up to a week.

3. Investment in Multiple Stocks

Equity funds give you the option to invest in multiple stocks, which diversifies your portfolio. You can invest in several equity stocks with a minimal amount. The investment in various stocks has the potential to offer better returns than investing in a single stock. Besides, diversification protects you from the fluctuation of the stock market.

If you choose to invest in equity mutual funds, it provides such wondrous benefits. You also need to know that investment in equity mutual funds is relatively risky. Although it may be said, not taking a risk at all is a more significant risk when we talk about investing in the stock market, and the same is true for investment in equity mutual funds. Moreover, investing in deposits and debt funds will not provide you with enough returns to cope up with rising inflation. even you may know, the equity investments give a handsome return in the long term, and therefore, even AMFI is trying to encourage young minds and investors to invest in mutual funds for a better tomorrow.