Mutual funds, especially equity mutual funds, have been around for a while as a way to invest. In India, their success is nevertheless a more recent trend. This article will help you make sense of what Equity Mutual Funds are and how they help you, specifically.
What are mutual funds?
Mutual fund pools cash from various investors, such as you, and invests it in investment baskets. What is called a portfolio is created by these baskets.
This means that, in a community of investments, the capital is invested in a clear and accessible way. At the basic level, based on where they invest, mutual funds are categorised as equity funds, debt funds, and money market funds.
The most numerous and famous type of mutual funds that you will come across is equity mutual funds.
What are Equity Funds, and how do they work?
Equity Mutual Funds invest the combined cash of investors in the shares of different firms. The output of the Mutual Fund gets measured by the gains or losses resulting from price fluctuation of these securities in the stock market.
The price they pay for each unit of the fund is the Net Asset Value (NAV) when an investor invests in an Equity Mutual Fund.
Net Asset Value is the fund's book value. Book value is the distinction between what is owned (assets) by the mutual fund and what is owed (liabilities) by the mutual fund. The properties are shares that were acquired by the fund. Liabilities are composed of costs incurred to operate the mutual fund.
Stock-market price fluctuations directly influence the NAV.
A mutual fund's investment operations, equity or otherwise, are professionally controlled by fund managers. These fund managers are competent and skilled individuals who, after a thorough examination, are chosen.
How can you invest in mutual funds?
Investment in equity funds can be done in two ways
- You can invest it all at once if you have extra cash, a lump sum amount that you want to put away for future use.
- Systematic savings are a safe way to invest if you save small sums from your monthly paycheck. This makes it viable for you to spend your money in a hassle-free and disciplined way. A SIP's key advantage is that it provides investment discipline and encourages you to start even if you have limited amounts to invest.
How do you benefit from investing in Equity Mutual Funds?
- Growth in NAV
- Dividend Payout
In the case of mutual funds, returns after a one-year holding period are deemed to be long-term gains and are tax exempt. Also, in the hands of owners, dividends on equity funds are tax-free.