Wealth creation tips with Equity Mutual Funds for 2022
Equity mutual funds are a type of mutual fund scheme that invests a significant portion of their capital in the stocks of other companies. Equity mutual funds invest across market capitalization and can generate high returns. This is also why they are also known as growth funds. However, along with the possibility of high returns, they carry high risk too.
Equity mutual funds can be an excellent tool for capital appreciation. So, if you want to invest in them in 2022, here are some tips that can come in handy:
1. Invest in equity funds according to your age:
Equity mutual funds can carry high risk, but they also deliver relatively higher returns. As a result, they are a must-have in any investment portfolio. However, their concentration can be decided as per your age. For youngsters with a long investment horizon, investing most of your funds in equity may be advised. The chances of loss are reduced over the long term. Moreover, you have ample time to overturn a loss (if any) into a profit since you are young. But, as you age, you may want to cut the concentration of equity and move towards debt.
In 2022, aim to invest more in equity mutual funds if you are young. If you are nearing retirement, you can reduce the percentage of equity mutual funds and move your money to debt funds. However, do not entirely let go of equity as it can offer inflation-beating returns that can help you stay financially secure for a long time.
2. Invest in large-cap companies if you have a low-risk profile:
Even though equity mutual funds carry high risk, you can avert some of this by investing in significant cap funds. Large-cap companies are the top players in the market. So, the chance of suffering a major setback is the least for them. These companies can deliver steady returns and offer comparatively low risk and low volatility while offering you exposure to growth. You can consider adding such mutual funds to your portfolio in the coming year.
3. Start investing in equity mutual funds through a SIP:
A systematic investment plan or a SIP is a method of investment that allows you to invest smaller yet frequent quantities of money. A SIP can be a better way to invest in equity mutual funds for various reasons. Firstly, it is convenient to invest as you do not have to make lump sum investments. This can be suitable for the salaried class as the financial burden gets distributed over time. In addition to this, since equity mutual funds can be volatile, a lump sum investment can present more risk. In the case of SIPs, you can invest over time and benefit from rupee cost averaging that lets you buy fewer units when the market is high and higher units when the market is low.