Things to Look at Before Investing in Equity Funds

Equity mutual funds have soared in popularity with Indian investors as they are professionally managed, closely regulated, and can offer excellent returns. If you realise these benefits and want to start your equity mutual funds portfolio, now is the right time.

But, before buying these sets of funds, know that they typically invest 100% of their corpus in the stock market. A part is kept in cash or liquid instruments to service the redemption and cash call by the fund manager to take advantage of any tactical opportunities.

All ready to buy into the equity mutual fund economy? Well, then keep the following 3 pointers in mind before investing.

Check the historical performance of an equity mutual fund

Before you cherrypick an assortment of equity mutual funds, it's critical to gauge their past track record. Sure, certain equity funds might be witnessing a growth spike presently, but if such a thing is relatively new or sudden, you might want to invest only a small amount in them.

Moreover, if you are new to investing in equity mutual funds, we recommend investing a majority chunk in hybrid or balanced advantage funds. Since these funds contain both equity and debt components (in a specific ratio), they can help you diversify your holdings and reduce investment risk.

Additional Read: What is Equity Mutual Fund?

Identify your investment horizon

Equity mutual funds are excellent instruments for wealth creation in the long term. Thus, if you have an investment horizon spanning over several years, choose equity mutual funds. If you have long-term goals like buying a house or building a retirement fund, look for top-performing equity funds. However, if you have a short or medium-term horizon, you can explore balanced and hybrid mutual funds. These contain lower risk than pure equity funds and are affected less by market fluctuations.

Know your risk appetite

Some equity mutual funds are riskier than others but can offer higher returns. Therefore, you must know your risk appetite before investing in them. If you are a conservative investor, who seeks a steady source of income, perhaps you should only invest in large-cap equity mutual funds, or better yet, choose debt-linked mutual funds.

However, if capital appreciation is your primary goal, be it quickly or over a long duration, equity mutual funds are a better bet. You can also diversify your mutual fund portfolio in both debt and equity funds to shield your corpus from market fluctuations.

Additional Read: Direct Equity vs. Equity Mutual Funds: Which should be preferred?

Parting thoughts

Want to invest in equity mutual funds through a user-friendly online investment portal? Well, then you're in luck, for Tata Capital brings you Moneyfy app. Through our portal, you can compare and instantly invest in a diverse basket of mutual funds.

If you’re not comfortable investing a lump sum in mutual funds, you can also start a SIP with as little as Rs. 500 per month. So, log on to our website, select from a mix of diverse mutual funds, and invest today!