Why are equity mutual funds becoming popular in India – Explained!

Equity mutual funds have gained increased traction among Indian investors in recent years, becoming one of the primary investment vehicles. Their rise can be attributed to multiple factors – higher returns potential, growing financial awareness, ease of investment and so on – but this article explores why more investors are turning to these mutual funds as part of their portfolio strategy.

Potential for high returns

One of the primary draws for investors in India to equity mutual funds is their potential for higher returns compared to traditional investment options like fixed deposits and small savings schemes. Equity has traditionally outshone other asset classes over time due to its ability to build wealth through capital appreciation and dividend income.

An equity mutual fund combines the investments of multiple investors into a pooled corpus that invests in stocks to expose investors to the growth potential of equity markets. Although investing in stocks carries higher short-term volatility and risk than investing in bonds or cash equivalents, its long-term wealth creation potential makes equity mutual funds an appealing option for those seeking higher returns.

Fostering financial awareness and education

India’s growing inclination for equity mutual funds can also be attributed to an increase in financial literacy among its citizens, who can then better grasp the significance and advantages of investing. More people becoming financially knowledgeable help people understand the significance of diversifying their investment portfolios for greater returns.

Government, financial institutions and organizations have played an essential role in increasing financial literacy and creating awareness of equity mutual funds as investments. Digital platforms and social media have only amplified this reach and accessibility of financial information making it simpler for investors to become acquainted with all available investment options including equity mutual funds.

Ease of investment and digital platforms

Technological innovations and digital platforms have made investing simpler than ever for investors, enabling them to access an array of investment options online and complete the entire investment process without physical paperwork or visiting a branch office.

Online investment platforms and robo-advisory services have further simplified investing in equity mutual funds, allowing investors to easily compare funds, assess risk profiles, and make informed investment decisions based on their goals and risk tolerance before buying mutual funds online. Additionally, Systematic Investment Plans (SIPs) make investing easier by allowing for regular small investments instead of lump sum amounts.

Tax benefits

Equity mutual funds offer numerous tax advantages that make them attractive investments for Indian investors. Long-term capital gains (LTCG) from equity mutual funds held for more than one year are taxed at just 10% on gains exceeding ₹1 lakh during any calendar year – combined with the potential for higher returns, this makes equity mutual funds an appealing choice to maximize post-tax returns.

Conclusion

Equity mutual funds in India have experienced unprecedented popularity due to many factors, such as their potential for high returns, increasing financial awareness, ease of investing through digital platforms and tax benefits. More investors continue to buy mutual funds each year, indicating their importance as long-term wealth-creation strategies and financial growth vehicles in India.

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