The total AUM (assets under management) of the Indian mutual fund industry grew to ₹53,40,195 crore in March 2024. Equity funds are extremely popular in India, as they help investors grow their wealth over a medium-to-long term. Read on to know how you can build wealth through equity mutual fund investments.
How do equity mutual funds function?
Equity mutual funds pool money from investors and invest them in several sectors. These are actively managed mutual fund schemes handled by professional fund managers. They aim to generate returns that beat inflation over extended timeframes.
Tips to build wealth through equity mutual funds:
Fix an investment objective for your mutual fund investment
You will benefit a great deal by fixing an investment objective before investing in an equity mutual fund. Doing so can help you determine your investment amount and the length of your investment horizon. Goal-based investing can help you align your investments with your goals and take the right decisions in the future to achieve these goals.
Choose SIPs as your mode of investment
Systematic investment plans (SIPs) are ideal if you are looking to generate wealth through equity funds. You can benefit from rupee-cost averaging and the power of compounding through SIP investments. SIPs can also help you instil regularity and discipline in your investing.
Manage your portfolio’s risk by diversifying your investments
You should assess your risk appetite before investing in any equity fund scheme. You can mitigate your portfolio’s overall risk by spreading it across all forms of investment. Diversifying your investment portfolio can help you reduce the risk associated with equity investments.
Maximise your mutual fund returns by optimising them for tax efficiency
You should also consider the tax efficiency of an equity fund scheme before investing in it. If you hold your equity fund units for less than a year, your short-term capital gains (STCG) are taxed at 15% regardless of your income tax bracket. These STCG are tax-free up to ₹1 lakh per year. However, if you hold your equity fund units for more than a year, your long-term capital gains (LTCG) are taxed at 10% with no indexation benefits.
Continuously monitor your mutual fund returns by adapting to market changes
Asset allocation is a very important part of equity fund investment. You must regularly monitor your fund’s results and make the required changes in your portfolio. Stepping-up your SIPs can help you adapt to the changing nature of investment objectives. You can also grow your returns thanks to the power of compounding by increasing your SIPs. Step-up SIP calculators help you increase your SIP contributions by a fixed amount or percentage. You can use these free, online tools to gradually increase your SIP contributions.
Keep learning to improve your investment style
It is very important to keep learning while investing through SIPs. You can read about all the categories of equity mutual funds and try investing in each based on your risk appetite. Learning more about various investment biases can help you invest better and read the market conditions accurately.
Equity funds can pose a moderate-to-high risk to the investor. You must assess your risk appetite and use an online SIP calculator to check your returns before investing in an equity mutual fund scheme.