Equity mutual funds are suitable for passive investors seeking the benefits of capital appreciation over a period of time. By outsourcing the stock selection and monitoring process to experienced Fund Managers, investors can reap rich rewards without the stress of active and daily management of their stocks.
Over 40 Asset Management Companies (AMCs) manage over 5000 schemes, making it impossible for any investor to take an informed decision.
Careful selection of schemes, based on time-tested parameters is essential. These include short term and long term track record, fund managers performance, composition of the portfolio and Assets Under Management (AUM) of both the scheme and the Fund House.
Several equity funds have established track records of outperforming the benchmarks consistently, and provide the ideal hedge against inflation.
A time tested strategy to ride out volatility in the markets, is by way of a Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) which use the concept of rupee-cost averaging to maximise returns.
As an asset class, equity has outperformed all other classes like fixed deposits, gold and debt funds over different time frames.
The equity schemes offered by all leading Fund Houses can be broadly categorised as large-cap, multi-cap, small and mid cap, and sector funds.
Investors can choose between either growth or dividend options. Niether dividends nor returns are assured in any mutual fund scheme.
These investments are suitable for risk-averse and low-risk investors, seeking a reasonable return with an emphasis on preservation of their capital. The selection of these schemes is based on various parameters. These include short term and long term track record, fund manager's performance, composition of the portfolio and Assets Under Management (AUM) of both the scheme and the Fund House. There are other important investor-specific considerations like liquidity, holding period, need for income vs growth, and taxability.
As such schemes invest primarily in interest bearing investments, they have an inverse relationship with interest rates. Meaning if interest rates are falling, these funds in general tend to fare better than in a rising rate regime. To minimise fluctuations in the Net Asset Value (NAV) of the investment, it is essential to opt for investor-specific schemes. This is done by selecting schemes where the duration of the underlying paper matches the holding period of the investor.
Fixed Income or debt schemes as they are generically known, offer investors the options of growth as well as dividend plans. Currently, these schemes attract a dividend distribution tax. As in all investments an evaluation of scheme(s) best suited for the specific need of the investor from a wide array of available ones is necessary. Niether dividends nor returns are assured in any mutual fund scheme.
These schemes are structured to ensure the best possible post-tax return on investment. Timely reports on performance and valuation of the portfolio performance keeps investors updated. Though less volatile than equity funds, a continuous monitoring of scheme performance vis-s-via peers and benchmarks is undertaken.