New Delhi: Equity funds can be a convenient way to build wealth over time, but they are often misunderstood. Misconceptions about these mutual funds can prevent investors from exploring their growth potential. This article looks at seven common myths about equity funds and clears these misconceptions.
Myth 1: All equity funds are equally risky
One of the biggest myths is that equity funds are only for very aggressive investors. While it’s true that equity mutual funds involve market risk, not all of them are equally risky.
For instance, large cap equity funds, which invest mainly in well-established companies, are relatively stable compared to mid cap, small cap or sectoral funds.
Additionally, approaching equity funds with a long investment horizon can mitigate the risk of short-term fluctuations. Moreover, mutual funds are professionally managed and diversified, which can further reduce risk.
Myth 2: Equity funds guarantee high returns
Many assume that equity funds always give high returns. While equity funds have the potential to offer inflation-beating returns over the long term, they do not guarantee them. Performance depends on several factors including market conditions, economic changes, and how well the companies in the portfolio perform.
Equity funds often outperform other investment options over the long term, but they are subject to short-term market fluctuations. That’s why patience and a long-term approach are key.
Myth 3: You need a large sum of money to invest in equity funds
Another misconception is that equity funds are only for the wealthy because they require a large initial investment. This isn’t true. With Systematic Investment Plans (SIPs), you can invest as little as Rs. 500 a month. You can also choose daily, weekly, quarterly, half-yearly and other investing frequencies. Through regular SIP contributions, you can potentially build wealth over time through affordable instalments.
Myth 4: You must time the market to invest in equity funds
Many believe that you need to buy equity funds when the market is low and sell when it’s high. This is called timing the market, and it is a very risky strategy. Timing the market requires precise predictions, which even seasoned investors often get wrong.
Instead of trying to time the market, focus on time in the market. Staying invested for the long term potentially allows your money to grow through compounding, regardless of short-term market fluctuations.
Moreover, with SIPs, you don’t need to worry about market timing. Your SIP purchases more units when markets are down and fewer when they are up, which can mitigate the impact of volatility and leverage different market conditions.
Myth 5: All equity funds are same
Another myth is that equity funds are all alike. In reality, equity funds vary based on their investment goals, the size of companies they invest in (large-cap, mid-cap, small-cap), and the sectors or industries they target, and the investment approach they follow. For example, some funds focus on fast-growing companies, while others invest in undervalued companies. Choosing the right category of fund depends on your financial goals, risk tolerance, and investment horizon.
Myth 6: Equity funds are too complex to understand
Mutual funds may seem complicated at first, but they’re not. All you need to do is select a scheme and make an investment. Fund managers handle the complexity of navigating the market by selecting stocks and other securities and managing the portfolio.
Myth 7: Equity funds are for booking profits
Many think equity funds are a way to make quick money. However, equity funds are best suited for long-term investments. Staying invested for a longer period helps you potentially benefit from compounding and reduces the impact of market volatility.
For example, an SIP that runs for 10-15 years can help you achieve significant financial goals like buying a house or funding higher education.
Using SIP mutual fund calculator for better planning
If you are thinking about investing in equity funds, the mutual fund sip return calculator can be a valuable tool. This online calculator helps you estimate how much you need to invest every month to potentially reach your financial goals.
Based on your SIP amount, frequency, tenure and expected returns, the calculator shows you how much your money can potentially grow over time. Or, if you have a goal in mind – for instance, if your goal is to accumulate Rs. 20 lakhs in 10 years – you can use the calculator to work backward and determine how much you should invest to potentially achieve that target. However, it is essential to note that the calculator’s estimates are based on your inputs. Returns are not guaranteed and may not be along expected lines.
Key takeaways
Equity funds are a versatile investment option, but myths can create unnecessary fear or unrealistic expectations. By understanding the facts, you can make better financial decisions.
With the right approach, equity funds can help you systematically and strategically work towards a potentially comfortable financial future.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
