5 advantages of investing in long-term equity funds

 

Should you invest in a long-term equity fund in India? Investing in mutual funds for the long term usually means more than 3-5 years at least. In an ideal scenario, investing for more than 3, 5, 7 or 10 years will qualify as a long-term investment bet in order to enable long term wealth creation as well. You may be wondering why an investment should be long term in order to garner wealth. The basic philosophy behind the premise is that any deployment of capital for the long haul will naturally enable greater appreciation in terms of its overall value and this will ensure a handsome return on your investment as well.

Also, the short-term nature of the stock market is fluctuating and volatile, making it more difficult to reap the best rewards on your investment in a shorter period. Staying invested for a longer duration automatically ensures that you ride out the volatility in the market in the short term and get the benefits of better compounding on your investments at the same time.

Biggest advantages of investing in long-term equity funds

As you may already know, there are aspects to be factored in while investing in equity funds including market volatility, higher risk components and long term capital gains taxes among others. However, equity is a vital part of financial planning and you can also consider investing in long-term tax saving mutual funds with pre-defined lock-in periods (ELSS) for getting the highest rewards on your investment.

Here are the 5 biggest advantages of investing in a long-term equity fund in India.

• Duration- The time period for which you invest is really important to say the least. The longer you stay invested, the higher your chances of getting the best returns from your investment. From achieving any specific goal in life or accomplishing major financial objectives, you will have to clearly choose an investment tenure that is proportional towards the goals that you have. It takes time for any fund or stock to hit its peak levels and this is approximately 5-7 years at a minimum. You should give proper time for the mutual fund to grow in value as a long term investment.
• Compounding- This aspect cannot be emphasized upon less! The power of compounding is what actually makes long-term equity investments so lucrative. For equity mutual funds, compounding of the returns makes your corpus swell to a sizable amount at the time of maturity. Most people are often pleasantly surprised to see the overall returns on investment owing to compounding over several years.
• Portfolio Diversification- Diversifying your investment basket will naturally fetch you the highest profits. Investing in a long-term equity fund in India will ensure that you diversify your portfolio and get a chance to beat inflation with good returns.
• Lower Risk- By investing for the longer haul, you automatically spread out your risks and combat short-term market volatility. As a result, your investments go down in terms of the overall risk quotient.
• Proper Regulation- SEBI (Securities and Exchange Board of India) and AMFI (Association of Mutual Funds in India) hold responsibility for regulation of all mutual fund products. Both these government authorities ensure fully transparent investment practices and procedures. They regulate funds that are required to reveal their month-end figures and portfolios online for customers along with their daily net asset value (NAV) and expense ratios as well. Long-term equity funds are well regulated and hence you can be free from worries pertaining to your investment in the long run.

These are some of the biggest advantages of long-term equity fund investments that you should definitely check out.