FAQ’s on Equity Mutual Funds:
Equity and Property are two asset classes which can beat Inflation in long run and with good margin. Problem with property is we can’t park money in small proportions as per life goals. Inflation rate for last 3 years in India was 10% and FD has given 9% average interest. So, you are losing money by saving in FD.
In property there is no liquidity, however Equity Mutual Funds are fully liquid. Taxation on equity is NIL after one year whereas in case of property tax is 20% after indexation.
To reduce risk invest through Mutual Funds. To understand that, we need to understand why there is risk in equity:
- Timing risk: We need to be active in market and practically we don’t have time. Fund Management team is fully vigilant as it is their full time job.
- Knowledge risk: Fund Management team has more knowledge than us to pick and sell stocks.
- Diversification: MFs diversify their portfolio in atleast 25-35 stocks, which we never do because of our limited resources.
- There are two thumb rules of Making investment in equity:
- Invest that money which you don’t need for next 5 years.
- The best way to check whether we should invest in Share market is to look at PE ratio. Present PE ratio is very well within comfortable situation.
- Secondly India is almost at bottom in terms of GDP growth. Last year GDP growth was 4.70%, it can only go up.
- There is great potential especially under Mid cap and Small cap segment.
It will depend on your age, life goals, current portfolio composition and your risk appetite.