There are several types of mutual funds followed by several subcategories that can leave the beginner confused. But basically, the two types of funds that one has to encounter are the debt mutual funds and the equity mutual funds.
Equity mutual funds are recommended for long-term investment because of the higher returns potential. If you are contemplating on which one to choose, read on to know why equity mutual funds are a better investment choice for beginners.
Anyone can invest
There is no minimum investment amount to invest in these funds. Therefore, you can start off with the least amount that will not put a burden on your monthly finances, to begin with. You can, in fact, link it to your bank account wherein each month the said amount will be deducted on a predetermined date.
There is no doubt that the risk involved with equity funds is high at the same time the returns are also significant, probably high enough to even beat inflation. You are assured of the substantial amount over a period of time when you invest in these funds.
Funds are diversified to minimize the risk
Your fund manager will advise you on how the funds will be spread in various sectors to minimize risk. As a result, even if some stocks underperform there will be others which might overperform and even out the losses and maybe even make a considerable profit. Of course, this does not mean that you can overrule the risk factor completely.
Suitable for long-term financial goals
Time and again we have seen that even if the market goes down it eventually bounces back and hence investing in equity funds as a long-term option is good for your future goals despite the risk. Not all equity funds are high risk; they are categorized into high, medium and low risk. But higher risks mean greater returns.
There is no lock-in period with mutual funds; as a result, you can get your corpus back to your bank account any time you choose. Thus, in times of financial difficulties, you can redeem all your investment without any penalty.
And if you are still worried that you do not have sufficient knowledge of equity mutual funds, your fund manager will educate you. And in case it is beyond you to understand the numbers leave the hard work of keeping track of the market to your fund manager. Though being in the loop will be beneficial for you.