The Kashmir Pulse

An equity fund can be an excellent way to begin your investment journey in the stock market. Read this article to learn the benefits of investing in equity mutual funds.

Rising inflation and diminishing returns from traditional investment avenues have made investors look for various new investment options. As a result, equity mutual funds have rapidly gained popularity due to the multiple benefits they offer to investors.

What is an Equity Fund?

An equity fund is a type of mutual fund category that invests primarily in equities and equity-related instruments. As per the SEBI rules, an equity mutual fund in India must allocate at least 65% of its assets toward equities and equity-related instruments. Equity mutual funds can be divided into many categories based on their investment objectives. Some popular categories of equity funds are as follows.

• Large-cap Funds





• Mid-cap Funds





• Small-cap Funds





• Multi-cap Funds

Six Reasons to Invest in Equity Funds

1. Portfolio Diversification

Equity funds allow you to spread your investments across different sectors. Additionally, equity mutual funds allow you to invest in a range of assets such as stocks, bonds, commodities, and real estate, further diversifying your portfolio.

This is also an effective way to spread your risk, as you will invest across various equities and asset classes. As a result, your portfolio is unlikely to bear the full heat if one of the asset classes underperforms, as other investments can potentially mitigate the impact.

2. Professional Fund Management

Many individuals may find it hard to identify the right time and the stock to invest in. Secondly, you may not have enough time to monitor the market and predict the market behaviour.

However, equity mutual funds are managed by experienced investment professionals with in-depth knowledge and expertise in equities and the market in general. They routinely conduct extensive research and analysis of stock performances and market trends. These investment professionals ensure that your money is invested optimally through their mutual funds.

3. High Liquidity

Apart from ELSS and a few other specific category funds, open-ended equity mutual funds in India don’t have any mandatory holding period. So, investors can easily sell their fund units on any business day. Upon redemption, the redemption amount is credited to the investors’ account within a few days. Therefore, you can use your mutual fund investments to arrange cash in time of need.

However, if you exit the fund too soon, there might be an exit load. The scheme document mentions the lock-in period, which can range between a few days to a few months.

4. Well-Regulated

All mutual funds in India must adhere to the stringent regulations of the Securities and Exchange Board of India (SEBI), India’s capital markets regulator. This ensures that utmost transparency is maintained while handling the investor’s money.

5. Start Small

Many people can't afford to purchase all the individual securities a mutual fund holds. However, you can easily purchase equity fund units in small amounts. The minimum initial investment in most equity funds can begin from as low as ₹500-₹1000. So you can start accumulating fund units in small quantities to build a robust portfolio over time.

You can also invest in an equity fund through Systematic Investment Plan (SIP). SIP enables you to invest a fixed amount in your chosen fund at regular intervals like monthly, quarterly, etc., instead of investing a large amount at once.

6. Potential for Wealth Creation

Like all market-linked investments, equity mutual funds can carry a certain level of risk. However, they also have a strong potential to generate inflation-beating returns if you can stay invested for a long period, like seven years or more. Therefore, equity mutual funds can be an excellent option to create a good investment corpus for your future or fulfilling long-term financial goals.

There are various types of mutual funds to suit the varied needs of investors. So, set your investment goals, identify your risk-taking ability, and select the right equity fund to begin your investment journey without any further delay.

Gold is not just a top choice for ornament-making in India but also for investments. Given the high liquidity ratio of the asset and its inflation-proof price structure, gold remains a preferred choice among Indian investors hedging market volatility.

While the prices of gold have doubled over the last five years, like all investment vehicles they tend to experience period fluctuations. As an investor, you need to know what causes these price swings to protect yourself from fluctuating gold rates in Chennai and other cities.

Factors Influencing Gold Prices

Demand and Supply: The world has a finite reserve of this precious yellow metal. Thus, any change in the supply or demand side of its equation will have an impact on prices. For instance, during the wedding season in India, the demand for gold reaches an all-time high. If the supply doesn’t meet this high demand, the price of gold in Mumbai and other Indian cities will go up. Conversely, if the disposable income is low and supply outstrips demand, gold prices will fall.

Inflation: Since gold is often used as a hedge to mitigate inflationary pressures, gold rates in Mumbai and other cities are closely linked to inflation rates. When inflation is high, fiat currency is devalued. In other words, the purchasing power of currency notes reduces. However, since gold is a store of value, people tend to look to gold for savings. Higher demand for the asset spells higher prices.

Market Volatility: Any form of a market crisis triggered by geo-political or economic events impacts the gold rate in Chennai and other Indian cities. For instance, if investors see a palpable bearish trend in the stock market, they might wish to migrate to the safe-haven asset - gold, raising its price. Alternatively, a strong bullish trend in the stock market will lower the demand for gold as investors look to exploit higher returns from stocks.

Exchange Rate: India meets its gold demand through imports. Depreciation of the Rupee to the Dollar raises gold prices in cities like Mumbai, Kolkata, and others. In other words, gold prices in India will rise as the Dollar grows stronger.

Crude Oil Prices: Crude oil is an essential component of gold mining. So, the higher the price of crude oil, the higher the cost of gold production and the higher its market price.

Apart from these factors, others like RBI reserves, interest trends, the weakening Dollar, and the wedding season affect gold rates in Chennai and other Indian cities. To protect your gold investment from ups and downs, you can track these factors to gauge price movements and minimize losses.

Offsetting the Effects of Gold Price Fluctuation

Tracking these factors isn’t always easy. It’s always better to have a foolproof plan in place. To do so, you can implement the following precautions that’ll help offset the impact of gold price fluctuations.

Portfolio Diversification

Hedging market-linked risks means distributing your eggs in multiple baskets. In other words, you should diversify your holdings to avoid gold rates in Mumbai and other cities impacting your portfolio adversely.

You can mitigate the risks associated with the gold market by having a balanced mix of asset classes in your portfolio (like stocks, mutual funds, and bonds),. Not just that, you should also frequently rebalance your portfolio to ensure that it's keeping with the current market trends.

Gold Mutual Funds

Instead of passively waiting for gold prices to affect you, you can monetize these changes to your benefit with gold mutual funds. You can use the rising gold rate in Mumbai and other cities to earn returns by investing in these funds.

These mutual funds invest in physical gold, gold ETFs, stocks of gold mining companies, and distribution companies via direct and indirect routes. Usually, even a tiny change in the gold prices can change the return value of these MFs significantly. Sometimes returns from the funds even outgrow the actual price of the metal.

Sovereign Gold Bonds

You can also balance out fluctuating gold prices by opting for government-issued sovereign gold bonds. While these bonds are certificates issued against grams of gold, they come with a set return rate.

Investing in such bonds ensures lucrative payouts as the government issues an interest of 2.50% p.a. to the investors, credited on a half-yearly basis. Moreover, if market trends suggest a fall in gold prices, you can always sell these bonds before the end of the 8-year tenure.

Digital Gold

E-gold can be yet another price risk management vehicle you can add to your portfolio. You can purchase digital gold from apps starting from just 1 gram. You can leverage real-time gold rates to exploit price movements. Thus, you can sell the asset to churn out a profit when gold rates in Mumbai and other cities rise or purchase more units when prices are low.

Bottom Line

While you can never go wrong with gold investments, every investment strategy has its own pros and cons. To decide which one fits you best, you should always consider your investment goals, time horizon, and approach. For instance, long-term investors can look at SGBs, while those with short-term goals might find gold funds and ETFs more profitable.

Regardless of your approach, the bottom line is clear: portfolio diversification. While keeping a close eye on the factors affecting gold prices can help you hedge risks, portfolio diversification is the only way to offset price risks.