Understanding equity funds for better results

Mutual funds have become a household name in the last few years. Most beginners and experienced alike have chosen to invest in equity funds and debt funds to achieve their financial goals. That’s the beauty of mutual funds there are schemes for everyone with different investment goals, risk, and investment appetite.

That said it takes more than just knowing about mutual fund schemes and checking their credit rating. You need proper planning and few tips to follow to get the most out of your mutual fund investment.

Let’s take a look at the proven tips to get better results from your equity funds investment.

  1. Prepare well before you invest

There’s a preparation of at least weeks, if not more, that goes before you finally invest in equity funds. For the first-timers, it’s always better to seek advice from financial experts before you invest your hard-earned money.

However, if you want to learn and do-it-yourself, start by asking yourself these questions:

  • What financial goals do you want to achieve with this investment?
  • How much and how long do you want to invest?
  • Do you want to invest to achieve any specific goal or you just want to have a comfortable cushion of a huge corpus?

Answer to these questions will help you clear all the initial doubts and help you plan well for your short-term as well as long-term investments.

  1. Know your risk appetite

As you may know, mutual funds are subject to market risk. This risk varies depending on the types of mutual funds you invest in. Want to know the thumb rule of mutual funds investment? It goes as higher the risk, higher are the returns. So, understand how much risk you can tolerate and easily overcome over the period.

  1. Understand the different types of equity funds

Once you know your risk appetite and the purpose of your investment next key thing is to understand the types of equity funds.

Here’s is a brief overview for you to get started:

  • Based on sector and themes:
    • Sector and thematic funds: Tend to be riskier as they invest in a particular sector as they face both sectoral as well as market risks.
  • Based on market capitalization:
    • Small-cap funds: These funds invest in shares of small-cap companies and are most volatile.
    • Mid-cap funds: These funds invest in shares of mid-size companies. These are more stable than small-cap but less stable than large-cap funds.
    • Large-cap funds: These funds invest in the shares of large organizations and tend to be the most stable and offer steady returns.
    • Multi-cap funds: These funds invest in stocks across all types of market capitalization. The fund manager decides to invest in particular capitalization based on market conditions.
  1. Take the SIP route

Whether you’re a beginner or experienced Systematic Investment plan (SIP) is the best way to invest in mutual funds. Almost all the fund houses offer the SIP through which you can invest a small amount every month for the investment period you choose.

SIP is a better way to enjoy the benefit of the power of compounding and balance out the losses over the period.

Knowing these easy tips will help you get started with your equity fund investment and get better results in the future.

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