Wondering about long term equity fund investments? If done right, investing in long term equity fund can be quite beneficial indeed. In fact, equity funds are suitable choices for those investors who are looking to benefit from market rallies and are not comfortable with directly buying stocks in the market. Yet, when it comes to equity funds, you may often be confused with the several categories that they come in. Long-term funds could be a good choice in this regard.
Firstly, you have to understand the core principles behind equity funds. These are mutual fund plans which majorly purchase ownership in several businesses which are publicly traded. This is executed via investing the entire pool of funds from several investors in stocks of these entities or companies. The goal of these funds is to find the right opportunities for business investments that will eventually grow in the long term, thereby generating profits and handsome returns for all shareholders. Investing in long term equity funds- Things to keep in mind When it comes to investing in long term equity funds, you have to keep in mind that these can be tax saving mutual funds as well. As you may already know, most long-term equity funds are ELSS (Equity Linked Savings Scheme) investments for saving taxes in the long haul. Investing in ELSS schemes may help you get tax deductions up to Rs. 1.5 lakh under Section 80C of the Income Tax Act for a particular financial year. These schemes, however, have compulsory lock-in periods of 3 years. Hence, during this lock-in period, you cannot sell off these long term equity funds. In fact, they can be used for creating a handsome corpus for retirement, provided you have thorough understanding of the scheme and its core attributes. You may commence your investments with whatever amount you can allocate straight away. Yet, you should keep increasing investments in order to create a sizable retirement kitty or corpus. Keep in mind that investing a smaller amount on a regular basis over a longer duration is the best way to accumulate wealth. The long-term investment will work on the basis of the power of compounding. This will help you multiply your wealth over a period of two decades or even more. Experts also feel that equity is always expected to surpass performance of debt based assets when a 5 year duration is taken into account or even more. Some debt funds and gilt funds (long duration) have offered excellent returns on holdings for 5 years over the years. Yet, equity funds continue to offer largely superior returns over longer time periods. The only disadvantages or things to watch out for would be the lock-in period, i.e. you will have to stay invested for the minimum lock-in period and also, you will only get attractive gains if you invest and hold onto your portfolio for a longer period. This makes it suitable only for those with moderate risk appetite and the ability to stay invested for longer durations. Also, a modicum of market risk will always be associated with these investments so you should do thorough research before investing.
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