Equity Funds v/s Debt Funds

The first thing to understand is that mutual funds are investment vehicles, and that simply means that investors pool their money together and then the mutual fund invests that money on their behalf. The easiest way to understand this is to think that as an individual investor you would’ve gone to the stock market and bought a share, but now as a mutual fund investor you buy a mutual fund unit, and then the mutual fund pools together your money with money from other investors and then goes and buys shares on your behalf.

There are four main type of mutual funds based on what they invest in.

1. Equity Mutual Funds: These are mutual funds that invest in shares of other companies.

2. Debt Mutual Funds: Debt mutual funds are mutual funds that invest in debt instruments so they may buy debentures of a company or government and other such things.

3. Commodity Mutual Funds: These are mutual funds that own commodities like gold, and in reality, India only has gold based mutual funds.

4. Hybrid Mutual Funds: Hybrid mutual funds invest in a mix of the above three classes at the same time. So for example, they may invest 65% of their money in shares and 35% in debt.

The answer to which mutual fund you want to invest in depends on what you actually want to buy and your appetite for risk.

If you want to invest in shares and understand that investing in shares can sometimes mean that you even lose your capital then equity funds are for you.

If you want to be safe and protect your capital then you should only invest in debt mutual funds.

If you were interested in getting returns from gold then you should invest in a gold mutual fund. A hybrid fund is for someone who needs a balance.

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6 rules for investing in mutual funds

Money is a very strange thing-human beings make rational decisions while dealing with most aspects of life but make serious errors of judgment when it comes to dealing with money and finance including earning, protecting, budgeting, saving, spending, leveraging, investing and insuring.

Following are the 6 rules which an individual can follow while investing in mutual fund and gain the best out of their investment.

1. Asset Allocation Plan

While allocating assets, remember to allocate only that much money to equity funds which you won’t require for at least the next 5 years, and which you can afford to lose up to 50 per cent in the short term without any panic.

2. Regularly invest budget surplus in MF’s

Try to create a budget surplus by ensuring your income is more than your expenses. Then, channelize your additional income properly into investments like mutual funds.

3. Avoid over investment in Liquid Funds

Liquid Funds are only for parking “temporary surplus” and not for long term investments. If you believe that liquid funds are for long term investments then you believe in the fallacy that ‘saving is investing’ and will be in for a rude shock.

4. Should not ignore Equity Funds

One should not ignore equity funds because they are the gateway to long term wealth creation. If you ignore equity funds and only invest in debt funds then you are committing a grave mistake, which may considerably hinder your long term wealth creation potential.

5. Don’t ignore index funds

The words of the great legendary investor Warren Buffet who once said that “most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals”.

6. One should understand the fund before making any investment.

The primary purpose of MFs is to make your life simpler by investing your money on your behalf. However in reality, they have made your life difficult by making available a plethora of different categories and schemes. Hence, before biting the bullet, get acquainted with the category of fund you are investing in – Equity, Fixed Income, Balanced, and Commodity – and within them the various sub-sets like sector, theme, gilt, income, short-term, liquid etc.

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Food for Thought - Equity Funds!

Equity Mutual Funds add a blend to the dish if your Financial Portfolio. If  its  not there, then it might be OK, but if its there, its GREAT!

Have a look at the tasty and healthy benefits of a Equity Fund and how it garnishes your Portfolio to look good and feel healthy as well  –  

Get more healthy benefits of the same with additional sweetness of Monthly Statements and Online Portals with us.

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Equity Funds and its Types

Equity funds are an important part of Mutual fund industry. Hera, investments are made in stocks of different companies. As this fund invests in stock, one needs to have good risk appetite as the risk level is quite high, but along with high risk it provides high return.

It is suggested that those who have started earning or are in early phase of their career, they should invest in equity funds as it can help them to achieve their future goals. Also, they have huge time span to digest the big risk appetite.

There are a number of schemes in equity fund which have different characteristics. The different schemes and their characteristics are discussed in below Info graph -  

Personalize the recipe for your portfolio for your portfolio, with the various Equity Funds to suit your investment appetite.

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Strategic Allocation to Equities

Generally, Mutual Funds are opted over any other investment option for one major reason - that is they provide market benefits without making losses, which could have been there if you invested in Stocks. 

It is like being in the market indirectly, as you can get most of the benefits and not overcome the negative part of it easily through diversification. But, this extra piece of pie can only be attained if you are including a major part of your mutual fund investment in Equities. As it is that extra piece of the pie over and above the cake that helps you earn the extra income.

The question arises, Does people actually invest in Equities when they opt for Mutual Funds?

 

If you invest in Mutual Funds and input 95% of your MF Portfolio in Debt, then what is the use??

The below info-graph, with calculative figures, will show why Equities are important in a Mutual Fund Portfolio - 

Also, you can use the following four steps to go along with your Equity Investments – 

Equities can boost up your Investments and mainly the Returns to a major level. So start up your Equity based Mutual Fund Investments right now and earn the Extra pie!

To strategize your Mutual Fund Portfolio and learn in detail about the percentage of Equity Allocation further, connect to us HERE