Ashok Mehta

It is said that MONEY is your best friend. This is true to large extent as Money/Finance is our primary means of living. It is required to meet our day to day expenses, children education and wedding expenses, hospitalization expenses, to purchase of residential/commercial house/property and finally to meet our living expenses during retirement period.

To meet all the above social requirements it is highly important to start make savings regularly from the very first day you start earning. Not only that you should start saving but it should be of significant amount. It should not be “spend and save” theory but opposite of it. You should save a predefined portion of your earning every month and then use remaining amount for your living expenses. This way you can save more for a long period say 30 to 35 years.

It is not only enough to make regular and sufficient saving during our life. At the same time We must invest our savings in proper financial instruments where its real value grows (with respect to inflation).If you keep your savings in Bank FD or PPF or some post office scheme its real value does not grow as the return you get is nullified due to high inflation. (you receive about 8-8.5% interest and inflation rate is also same or even more!)

To overcome above mentioned difficulty you must invest in equity or equity mutual funds if your investment horizon is long (more then 8-10 years).Investing in equity requires deep knowledge, understanding and research for an individual which is not practical for a common man. The best option for common man is to invest in equity mutual funds where he is relieved of all complex work like selecting stocks, giving them weightage, when to buy, when to sell etc. In MF scheme this is all managed by Fund manager who is a highly qualified professional person and experienced. Moreover it is a proven fact that if you make investment in an equity MF scheme for long term the probability of loss is almost nil. On the contrary your long term returns are enhanced by compounding effect. Some good equity funds schemes are known to have given average return of more than 20 % annually in last 15 to 20 years. To add feather to all this, all income generated from Equity MF schemes is totally tax free if you stay invested in the scheme for at least one year. Moreover if you invest in ELSS equity MF schemes you are entitled for tax exemption up to a limit of Rs 1,50,000/-every year. ELSS equity MF schemes have a lock in period of 3 years which is least compared to other tax saving instruments.

There are some risks associated with equity MF schemes. During bad cycle they face high volatility during some time and their NAV reduces significantly.But for those who have invested with a long horizon, this is not a concern as it does not affect long term returns.

One more important thing investors are concerned about is when to invest. Answer to this question is difficult and different experts give different opinions. To remove this confusion it is best method to invest through systematic investment plan in which you have to invest a fixed amount every month in one scheme or more. By investing like this your purchase cost is averaged. Simultaneously you can invest lumpsum also when you feel that market has come down to significantly low level. While investing in equity MF keep following points in mind.

(1)Invest only a portion of your savings which you will not require for 8 to 10 years.

(2)Invest always in Equity MF GROWTH schemes so that you get the benefit of compounding.

(3)Select a good performing equity MF scheme.(Very Important)

(4)As far as possible invest through SIP mode which averages your cost. Simultaneously you can invest some lumpsum amount additionally whenever market level comes down significantly.

(5)Remain mentally prepared for high volatility as NAV reduce significantly during bad market cycle. Have patience and stay invested.

(6)Monitor the performance of the scheme every six months.

(7)Always keep in mind that over a long period of time equity MF schemes give a very high return which effectively beats inflation.

(8)After completion of investment period if money is required make it a point to withdraw it conveniently 1-2 years before requirement (so that you are not likely to get trapped in a bad market cycle)

GOOD ADVISERS CREATE WEALTH BUT

GREAT ADVISERS BUILD REPUTATION!

(The author is a Certified Financial Planner who can be reached at ashokamehta1973@gmail.com)

Disclaimer-Mutual Fund Investment are subject to Market. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision.

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0 responses to “Why Should You Invest In Equity MF Schemes”

  1. Anup Singh Kheechi says:

    Sir I want to Invest in SIP but How and Which Company Provide me good return

  2. dev says:

    Sir

    There is another option “VIP”. It is also good system for investment like SIP.

    Regds

  3. Sandeep says:

    Sir, your article is informative. I am regularly investing in MF via SIP since last couple of years.However some of the MF performance is not upto mark. If I produce the list of MF`s i am investing in, can you suggest alternate MF so that I can switch over? Thanks..

  4. govind says:

    if you have patience and forget the money for 10 years invest otherwise plan some thing.

    • Ashok Mehta says:

      Dear Govind,
      You do need to have patience if you want to invest in Equity MF schemes.You may get handsome returns in short term also if market conditions are favourable.I have mentioned minimum period of 8-10 years so as to keep safety margin.Moreover if you invest for long term you get benefit of compounding also.
      With regards,
      Ashok Mehta.

  5. Dr. Gurdeep Singh Sohi says:

    Your article was very informative.I want to make some lump sum investment. Please suggest some mutual funds.

    • Ashok Mehta says:

      Dear Dr Gurdeep Singh Sohi,
      Following are some good tax planning
      schemes.
      (1)Axis Long Term Equity Fund (2)Franklin India Taxshield Fund(3)Tata Long
      Term Equity Fund
      Following are some good diversified Funds.
      (1)Franklin India High growth Companies Fund(2)Franklin India Prima
      Plus Fund(3)Birla SL MNC Fund
      Following are some good balanced funds.
      (1)Tata Balanced Fund(2)HDFC Balanced Fund(3)L & T Prudence Fund
      (4)Franklin India balanced Fund.
      If you are getting tax rebate then you must invest in ELSS Fund.
      If you are not getting any tax rebate then you may invest in balanced
      funds Here returns are little less than diversified equity schemes but
      risk element is quite less.
      You should invest in equity MF only if your time horizon is atleast 8-10 years.
      I would not advise you to make a lump sum investment in present circumstances.Invest through SIP.You may park your money in some good liquid/ultra short term fund which will earn you interest equal to Bank FD.From this investment you may start an STP to a selected equity scheme/s.
      With Regards,
      Ashok Mehta.

  6. Santosh Gowda says:

    Respected sir

    Your article is very useful. I m interested in SIP related product. Plzz suggest the best SIP since I m beginner and yield should be handsome.

    Kindly suggest

  7. kaduba gaikwad says:

    R/Sir,
    Your aricale very good for investing amount for mutul fund, i had invest hdfc mutul fund sip Rs.2000/- per month …very very thanks for your article & taxguru.com giving very important informations abour tax…thanks..

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