While there are numerous investment options to choose from, equity investments remain one of the favorites among investors looking for an aggressive option. This is because equity investments offer a higher return potential. But at the same time, they come with a risk that is parallel. This risk makes many people stay away from equity investments even when they want to. Plus, the constant monitoring it requires could also become a chore. If you are someone who thinks along the same lines, an equity mutual fund could be a good option for you. Let us see how.
What are equity mutual funds?
Let us look at what mutual funds are fund. They are funds created by experienced fund managers. Every mutual fund will have a focus and a theme. Based on this, there will be a carefully curated portfolio. Then, the managers of the fund houses pool money from different investors and invest that money in the portfolio they have created.
Here, the portfolio will be made according to the theme of the fund. For instance, if the managers are making a conservative fund, they might put more focus on including conservative investment options like debts and bonds.
On the contrary, if the fund’s theme is supposed to be aggressive, the managers would focus more on equity funds.
Equity mutual funds
Equity mutual funds are those which focus on equities. Here, the fund would try to grow your money aggressively but with higher risk.
Will equity mutual funds suit you?
We have to consider three factors to answer this.
Risk appetite: Different investors will have different risk appetites. It could be based on their age, the number of funds they have, or just based on their character. An investment option works best for you when it has a risk suitable for your appetite. As said above, equity mutual funds come with high risk. Hence, make sure you have the stomach for that before you invest. You could take the help of an investment expert for this. They can analyze your profit and help you determine how much risk you can afford.
Investment goals: Your investment goals also play a crucial role here. Most equity investments work the best when you stay invested for a longer time. The same is true in the case of equity mutual funds are well. Hence, if you are having short time goals, it may be wise to choose another option.
Similarly, equity mutual funds are designed for capital appreciation than capital protection. So here, too, if your goal is to protect capital, you may have better options.
Your current portfolio – You should also consider your current portfolio before you decide to invest in mutual funds. An ideal portfolio should have elements that complement each other it should be able to both protect and appreciate your capital at once. For instance, if you have investments in both equity and debt instruments, the debt part will keep your funds protected while the equity part ensures capital appreciation.
Here, if you already have enough equity investments, you may want to look at other options that can diversify your overall portfolio. But if you have a portfolio that needs debt, an equity mutual fund could work well work you.
Bottomline
Investing in equities through mutual funds has some great advantages. First of all, you don’t need to manage or monitor your portfolio like you otherwise had to and since there is an experienced fund manager handling things, the risk associated with it also becomes lesser.