Concerned about investing in equities mutual funds? Here’s the solution
Mutual funds are an investment tool where more than one investor pools their money to earn revenue on their investments over a period. Here the mutual fund portfolio is managed by a professional referred to as a portfolio manager or fund manager. Before investing in a mutual funds scheme, it is essential to determine which type of mutual fund you are investing in. One of them is equity funds. They are the type of mutual fund that primarily invests in stocks. The fund manager invests the investor’s money in the fund via lumpsum or SIP, which later invests it in various equity stocks on the investor’s behalf. The resulting losses or gains accrued in the portfolio affect a fund’s net asset value (NAV).
What are equity mutual funds?
Equity mutual funds are known for investing mainly in the stocks of various companies to generate income. Before investing in these equity funds, it is essential to remember that these investments are linked to higher risks. Therefore, you need to be prepared for risks while investing in mutual funds.
Who should invest in Equity Mutual Funds?
Before you decide to invest in equity funds, you must ensure that your financial condition must be in sync with your risk profile, investment horizon, and other objectives. If you have a long-term goal, you should invest in equity funds. Doing so will provide your funds with the much-needed time to combat market fluctuations and movements.
What are the types of equity funds?
Listed below are some of the popular types of equity funds:
These equity fund schemes invest in companies with a rank above 250 in terms of their entire market capitcapitalizationper SEBI guidelines). However, small-cap equity funds are considered to be a riskier option. However, since the risk elements in these funds are known to be high, they can offer a relatively higher revenue. The minimum exposure to such stocks is 65% of the total assets.
They are the equity mutual fund schemes that invest in companies between 101 and 250 by their total market capitcapitalizationike, like small-cap funds; these funds are considered a less risky option. Like small-cap funds, the minimum exposure to such stocks is 65% of the total assets.
Large-cap funds are the equity mutual fund schemes known for investing in companies ranking between 1 and 100 in terms of total market capitcapitalizationse funds are regarded to be the least risky as far as equity fund-picking goes. The minimum exposure to such stocks is nearly 80% of the total assets.
Large- & mid-cap funds:
They are known to equally divide the allocation of funds between large- and mid-cap equities and related instruments. They have the potential of probably offering relatively higher returns. The mandated minimum exposure to large-cap and mid-cap stocks here is 35% of each total asset.
They are known for investing in stocks across large-, mid-, and small-cap corporations. Depen65% of the total assets is the minimum exposure to such reserves. Ding on the market conditions, the fund manager decides the predominant investments. 65% ’s how you mitigate risks in equity funds:
As stated earlier, by their very own nature, equity funds come with many risks. Since the stocks here are exposed to equities, one should be prepared to take some risks. Here are some of the things that you can do to mitigate risks in equity funds:
Learn more about the market:
One of the things that makes a potential investor think twice before investing is the uncertainties in the market. One of the things you can do is conduct some research about the market. Analysis can be carried out either by reading books on the economy or listening to podcasts about the market. Apart from that, one can watch financial experts on TV news channels. They can also visit economic internet forums or social media handles to learn more about the market. Learning more and more about it will help one figure out whether they have the mental capacity to invest in stocks.
Contact a financial advisor:
If you are new to investing, it will be prudent to talk with a mutual fund advisor or financial planner to answer your doubts. Usually, they have the experience of investing in the market. Because of that, it would be better if you were to heed their advice.
Rebalance your portfolio:
Suppose you remember that a bull run in the market may result in the skewing of your portfolio allocation in equity. To avoid such a mismatch, you should review your portfolio every year and take adequate steps to get back to your plan’s original allobudgetper.
Taking t If you are an investor, you should also ensure to rebalance your portfolio once a year. HeTheteps, as mentioned above, may help you reduce risks in your equity fund. Here’s hoping that this article gives you a clear picture of investing.
Disclaimer: Mutual Fund Investments are subject to market risks; read all scheme-related documents carefully.