These Important Things to Know Before Investing in Equity Mutual Funds – In today’s time, a lot of people want to invest their money in some place to get some good work and fulfill their purpose. In earlier times, investing in mutual funds was just a matter of people who had a very good knowledge about it. But now investing in mutual funds has become very easy and many people in India are also adopting this option.
In the present times, you can invest in Equity, Debt, Gold etc. in Mutual Funds and get good returns in future. If you want to invest in Equity Mutual Fund, then it is very important to know about it well. If you do not know about it before investing in a mutual fund, then it can prove to be quite fatal for you.
These Important Things to Know Before Investing in Equity Mutual Funds
Many people say that their money has been drowned in mutual funds, it is due to lack of information. In today’s time, many investors are getting good returns by investing their money in mutual funds. Before investing in equity based mutual funds, you need to know some important things. In this article, we are going to give you information related to this.
1. Large Cap Funds
Large cap funds are equity funds that invest in companies with large market capitalization. According to SEBI, in terms of overall market capitalization, companies ranked between 1 and 100 are called large cap companies. Generally, the financial condition of such companies is very good and their growth rate keeps increasing continuously. They have significantly lower risk levels compared to small and mid-cap stocks.
By investing in large-cap funds, you can avoid taking too much risk in the long run and can also get good returns. However, large-cap funds are expected to have lower returns as compared to small and mid-cap funds.
2. Small and Mid-Cap Funds
Small and mid-cap mutual funds focus on investing in stocks with small to mid-level market capitalization. Such companies have a high probability of a stock surge but the risk is also high in this. According to SEBI, mid-cap companies are ranked between 101 and 250 in terms of market capitalization, while small-cap companies are ranked after 251. Those who want to get maximum returns by taking risk can invest in small and midcap funds. The best way to invest in such funds is SIP.
3. Multi-cap funds
Multicap funds provide an opportunity for investors taking risk in different sectors and investing in companies with different levels of market capitalization. Such funds are best for investors without investing in them. Multi-cap funds are good enough to meet long-term financial goals. That is, if you want to invest for a long time and get moderate returns, then you can invest in multi-cap funds.
4. ELSS Funds
ELSS funds are equity linked saving schemes and tax saving equity oriented mutual funds that provide their investors with a chance to get a rebate of up to Rs 1.5 lakh under Section 80C of Income Tax. For your information, let us know that the minimum limit to invest in ELSS funds is 3 years, that is, you cannot withdraw your invested money for 3 years.
5. Index funds
Index funds are passive investment funds whose structure and returns are based on an index. Index funds are good for investors who want to invest for the long term and also take a little bit of risk. Index funds are from low-cost funds, which means that their expense ratio is low, which can give them good returns.
6. Sectoral funds (thematic funds)
For your information, let us know that there are some funds which invest in stocks of a particular area like banking or technology. Such funds are also called kothimatic funds as they also invest in stocks with common themes such as consumption or logistics. Some people have a good knowledge about a particular sector and they hope that the company of the area can perform well in the future. However, the risk is much higher in such an area.
If the companies of such sector do not perform as per your expectation then it can cause you a lot of loss but if the company of such sector performs well then it can also give you very good returns. Before investing in such funds, it is very important to get a good idea about that area.