How to Generate Long-Term Wealth: Equity Mutual Funds

Equity Mutual funds invest in stocks in an effort to generate higher returns. Since they are the riskiest and most volatile type of mutual, they also have the potential to offer the highest returns. There are some important factors to consider and the decision to invest in Equity mutual funds must be made carefully. This is because changing market conditions and the mutual fund you choose to invest in can significantly impact returns.Understanding Equity Mutual Funds 

If you want to choose the best equity mutual fund, here are some important factors that can help: 

Past and Current Performance: Equity mutual funds are a medium to long-term investment. Therefore, investors should carefully analyse the returns that different types of equity mutual funds offer. The returns that one should focus on are based on a 3-year and 5-year horizon. If the returns are higher than in comparison to its peers and the benchmark, investors can consider that mutual fund as a strong investing option. 

Management: Who is managing the equity mutual fund? This is an important question because the performance of managers overlooking an equity mutual fund directly impacts the fund's performance. If the mutual fund and the managers you decided to invest with have a good track record and reputation, it can be a point in that mutual fund's favour.

Expense Ratio: The expense ratio denotes the amount an investor will need to pay to fund and fund managers for their investment services. The lower a fund’s expense ratio, the better it is for the investor. The optimum industry benchmark for expense ratios is between 0.5% to 2.5%.

Asset Allocation: Each equity mutual fund has a different investment strategy, which is reflected in the type of stocks they choose to invest in. It is important to analyse how diversified the investments of a fund’s portfolio are. Some funds focus more on large-cap stocks (less risk) and some funds focus more on mid-cap stocks (moderate risk, but comparatively higher returns). Investors should definitely understand their own risk appetite and financial goals before coming to a decision.
Following these four tips will help you choose the best equity mutual fund that is most suited to your investment goals. 

Features of Equity Mutual FundsHere are some features of Equity mutual funds and some reasons you should invest in them:

• One of the most effective strategies to increase wealth
  

• Since SEBI regulates all equity funds, there is a high level of transparency and disclosure when investing in equity mutual funds. This assists investors in making wise investment decisions.
  

• Obtain skilled fund managers' insights and professional services at a very low price
  

• Compared to buying stocks directly, equity funds offer the benefits of diversification at a very low cost.
  

• You can invest in equity mutual funds through systematic investment plans (SIPs). SIPs are an extremely affordable investment strategy, requiring as little as Rs. 500 a month to maintain your investment. You can use a mutual fund SIP calculator to calculate the optimum monthly amount you should invest. 

Who Should Invest in Equity Mutual Funds? 

• High-risk appetite investors looking for higher returns over long-term horizons.
  

• Individuals who can afford to keep their money locked in for 5-7 year periods since this offers healthy average returns.
  

• Individuals looking for better tax benefits when compared to other types of mutual funds, such as debt funds.
  

• Investors looking to optimise long-term investment and retirement planning 

Small List of Best Equity Mutual Funds for Long-Term Growth: 

• Kotak Infrastructure and Economic Reform Fund Direct 

• GrowthSBI Contra Direct Plan-Growth

• Motilal Oswal Midcap Fund Direct-Growth

• SBI Magnum Mid Cap Direct Plan-Growth

• Axis Small Cap Fund Direct-Growth