Equity mutual funds invest in equity shares of listed companies across different sectors and market capitalization segments. Equity funds are one of the best long term investment products. In this article we will discuss some of key benefits of investing in equity funds.

• Best performing asset class in the long term: Historical data shows that, equity is the best performing asset class over a long investment period. In the last 20 years, the BSE Sensex has given 10.8% annualized returns, while gold has given 8.6% and fixed deposits have given 7.8% annualized returns respectively. Rs 1 lakh invested in the Sensex 20 years back would have grown to Rs 7.8 lakhs, while the same amount invested in gold and fixed deposit would have grown to Rs 5.2 lakhs and Rs 4.4 lakhs respectively.
• Risk Diversification: When we invest directly in stocks, we are exposed to company risk, sector risk and the market risk. By investing in a diversified portfolio of stocks across different sectors, equity mutual funds are able to diversify company specific risks and sector risks to a large extent. Significant investment outlay required to build a diversified portfolio of stocks. Since mutual funds work on the concept of pooling of money, mutual fund investors can achieve risk diversification with a much smaller investment.
• Professional Management: Stock selection is a complex task which requires careful analysis of different factors like capital structure, financial performance, financial risks, competition, industry growth factors etc. Asset Management Companies have teams of research analysts who have the necessary experience and expertise to analyze these complex factors. Each mutual fund scheme is helmed by a fund manager(s) supported by the team of analysts. The track record of the fund manager is available in the public domain. Mutual fund investors can leverage the experience and expertise of the fund management team and get better returns on their investments.
• Systematic Investing for rainy days: It is said that, housewives manage to save a little from their monthly expenses, no matter how tight the budget is. In the earlier days, our mothers would keep these little savings in an envelope or their jewellery boxes or cupboard drawers for the rainy day. One hears of stories where these little savings accumulated over the years helped families tide over emergency financial needs or buy jewellery for children’s weddings. Mutual Fund systematic investment plans (SIP) offers a convenient mechanism of saving small amounts of money every month to be used in a rainy day. The money is automatically debited from your savings bank on a specified day every month and invested in a mutual scheme of your choice. Over a period of time one can accumulate a fairly large corpus, as we will illustrate with this example. If you save Rs 2,000 every month and invest through SIP in a mutual fund scheme, over a 20 year period, assuming you get a 15% return on investment, you will be able to accumulate a corpus of around Rs 30 lakhs.
• Tax Advantage: Equity, as an asset class, enjoys significant tax advantages compared to other asset classes. Long term (investments held for more than 12 months) capital gains from equity mutual funds are tax free. Short term (investments held for less than 12 months) capital gains are taxed at 15%. Dividends paid by equity mutual funds are also tax free.