Things to Keep in Mind Before Investing in Equity Mutual Funds


  • Planning to invest in equity mutual funds? Be aware of goals, risk appetite and investment horizon
  • Also, analyze the performance correctly before choosing the right equity fund

So you are looking to invest in equity mutual funds, right? What sort of financial goals you are chasing at? Have you correctly assessed the performance of the particular fund you want to invest in? Are your risk-taking capabilities high? All these are important considerations while looking to invest in an equity mutual fund that invests predominantly in equity and equity-related instruments of companies to mop up the earnings of investors over time. A correct evaluation of all these aspects can land you to the sum which you would want from equity fund investments. To help you evaluate better, the article comes with critical information. Let’s get started without any delay.

Decide on Equity Funds Based on Your Financial Goals

The decision to choose equity funds purely rests on the financial goals you want to achieve. Are you looking to shore up money that can meet the expenses of higher studies for your kids in some 10-15 years down the line? Whether you want massive surplus to ensure the wedding of your dear ones in the grandest way possible? These goals require substantial money to get fulfilled. The best way you can achieve these goals is by trusting the power of a top-performing equity fund.

Weigh Your Risk Appetite Properly before Taking the Plunge with Equity Fund

Having an understanding of the risks you can afford related to money matters can go a long way to help you decide the optimal asset allocation. If you have years before your retirement, you could have a high risk appetite. If that is the case, you can resonate with equity funds more. As equity funds invest the assets predominantly in equities that can fluctuate from time to time, it calls for a high-risk appetite on the part of investors. In the long-term, the impact of short and mid-term fluctuations can even out and help you achieve your coveted goals.

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Time Horizon – An Important Consideration Before Diving into the Territory of Equity Funds

The willingness to invest for a particular time also dictates whether or not you are the right individual for equity funds. Ideally, these funds are suitable for all those wanting to stay invested for long amidst fluctuations. As these funds tend to fluctuate, staying invested for long can outweigh the possible negative impacts of fluctuations and build the surplus required to achieve your goals. So, the time horizon should ideally be in the range of 10-15 years or even further.

Check Long Term Performance Before Choosing from Equity Funds

The successful run with equity funds also depends as to how they have fared in different times. You may come across a fund with spectacular returns in the short-term. But it’s performance in the long-term may not be good. On the other hand, a fund may have given a subdued performance of late. But, it’s overall performance would be good. So, your pick should be the latter one having displayed good performance in a long period.

Correct Evaluation of the Fund Performance is Even More Vital

Don’t only see the numbers that a particular fund has put on the table. Checking the numbers alone can mislead you and deprive you of the gains to make. A fund may have given poor performance in terms of individual numbers. But the returns posted by it could still be higher than that of its benchmark, which can be any of BSE Sensex, Nifty Index or others. Also, you need to weigh the fund returns with that of category average. If the fund has beaten the category average, you can persist with the same. Equity funds are basically categorized into large-cap, mid-cap, multi-cap, small cap, sector, thematic, equity-linked savings scheme (ELSS) funds, etc.

Disclaimer – “Mutual fund investments are subject to market risks. Please read the scheme document carefully before investing”

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