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Equity Funds: How to Maximize Returns in 5+ Years

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Jun 14, 2024
6 Mins

Equity Funds are a type of Mutual Fund dedicated to investing in stock markets, offering investors a broad, professionally managed portfolio. This diversification, often comprising 40-50 different stocks, mitigates the risk associated with individual stock investments. Despite short-term market volatility, Equity Funds are capable of providing compelling long-term returns. It is advisable for investors to stay invested for at least five years.

Diverse Equity Funds cater to various market capitalizations, sectors, and themes. Large Cap Funds target the top 100 companies, Mid Cap Funds focus on the next 150, while Small Cap Funds invest beyond the top 250 companies. The Large & MidCap Funds span the top 250 entities, alongside others concentrating on specific sectors or themes.

Among the top-performing Equity Mutual Funds over the past five years are the Motilal Oswal Midcap Fund, Mahindra Manulife Mid Cap Fund, PGIM India Midcap Opportunities Fund, Edelweiss Mid Cap Fund, and Nippon India Growth Fund.

The mechanics of Equity Funds involve investing in equity shares of multiple firms, where fund managers apply detailed analysis and research to make sound investment choices. Profits are created from capital gains through stock trading or dividends from these companies.

Equity Funds attract investors interested in stock market exposure without engaging in direct stock investments, offering a path for individuals with limited starting capital or a long-term outlook. Additionally, Equity Linked Saving Schemes (ELSS) offer tax-saving advantages.

Regarding taxation, dividends from Equity Funds are included in an investor's taxable income based on their applicable tax bracket. Capital gains are taxed as Short-Term Capital Gains (STCG) if held for less than a year, or Long-Term Capital Gains (LTCG) if maintained for over a year.

In summary, investing in Equity Funds can be a viable option for achieving considerable long-term returns, while keeping in mind the inherent market risks and aligning with your investment horizon. Consulting a financial advisor can be instrumental in selecting the right funds that match your financial objectives and risk appetite.

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