Why do we invest? Why should we defer our current consumption to perhaps consume at some later stage? The simple answer to that is Future protection. Meaning there will come a time where our earnings might not be there from active employment and/or something even scarier. And to enable us to continue to live life in close proximity to the standards we have grown used to is what leads us to savings and investing. Historically nothing comes close to Equity investments in terms of beating every other avenue for results. Results in terms of beating other comparable avenues, liquidity, transparency or the most fearful phenomenon of INFLATION.But investing in equities is a very tough ask. Specially so in today’s times when the degree of complication has multiplied manifold, the number of stocks have widened and noise about which ones to pick/leave is deafening. Exactly why we need equity funds.
And the reasons are:-
|Higher Return on Investment: - One of the key benefits investors get on equity fund is much higher returns on investment. It gives inflation-beating returns due to the risk factor associated with it. Equities are amongst the very few avenues where the returns are compounded and as Albert Einstein famously said, compounding is the 8TH wonder of the world. Those who employ it are going to enjoy the fruits of compounding and those who ignore it are destines to suffer for it.|
|Professionally Managed: -Equity funds are managed by fund managers who study the market, analyse the performance of various companies, and invest in the performing stocks.|
|Portfolio Diversification: -These investment gets spread into considerable sectors reducing the risk of loses in future. So, if some stock underperforms at the exchange, the other performing stocks can make up for the loses.|
|Tax benefits: - Individual investing in ELSS funds enjoy tax deduction. An individual can invest Rs. 1.5 lakh in ELSS under section 80C of the Income Tax Act, 1961.(for those following the earlier option of taxation). ELSS comes with lock in period of 3 years for each purchase.|
|Liquidity: - Units of equity fund can be redeemed anytime on any business day at the applicable NAVs except ELSS. However, ELSS schemes are liquid after the three years of lock-in is over. In equity schemes, the money is mostly transferred to the bank account in three working days. Further, the fund house is liable to pay a penalty in case the transfer does not take place after a certain number of days.|
|Easy to invest: - There are 3 ways of investing in mutual fund namely direct investment, online investment and investment through agent. It is completely up to us which route to take, but rest assured that each and every one is equal. However we strongly advocate the use of an advisor as there are any number of mutual fund schemes and it is best left to the expert to lead us to the one which is most apt.|
|Easy on pocket: - Anyone and everyone can invest in equity mutual fund through sip mode. One can start investing with just Rs. 500 a month.|
|Transparency: - the most important reason why. Every mutual fund publishes its complete portfolio of holdings across each and every scheme every month. So we know at every stage what exactly the scheme has and what it has acquired and what it has let go off. This degree of disclosure is unparalleled anywhere in the world and is similar in complexity as the Life Insurance Corporation disclosing its holdings.|
In all this one condition remains. Investments in equity is likely to take a lot of time to mature. So far more than money, the single most important attribute that I need to be an equity investor is PATIENCE. Go into it if time is one your side.
Prasunjit Mukherjee, Chief Ideator, myplexus.com.