Under the current circumstances, mutual funds need no introduction. It has gained significant popularity among investors for the easy leveraging of benefits through professionally managed securities. To cater to the varied requirements of the widespread customer base, several types of mutual funds are available in the market like debt funds, equity funds, hybrid funds, etc.
These are types of mutual funds that invest in the stocks of other companies. The concerned fund manager of the scheme defines the investment approach and risk involved for generating optimum returns when compared to the scheme target.
Here we will focus on some of the major factors to consider while investing in equity mutual funds like Axis mutual fund or Axis equity fund.
Important factors to consider before investing in the Indian equity mutual fund market:
1. Fund size
The fund size is determined by the total AUM or Assets Under Management. There is no ideal or perfect size for this asset. However, the fund performance gets affected if it grows too big or small. Comparing the AUM with the category average is a convincing way of deciding the ideal fund size.
2. Expense ratio
Any mutual fund investor must bear the fund management costs as applicable. Funds with more active management tend to possess an enhanced expense ratio when compared to those that are passively managed. Before investing you must make a comparative study of the category average with the expense ratio.
3. Risk Reward Ratio
This is the potential return that an investor is eligible to earn for each rupee invested and risked in the mutual fund market. Ideally, RRR must be in sync with your risk tolerance capacity. RRR shows the investor the limit of their risk to achieve the desired returns.
4. Equity Fund Types
Equity funds can be categorized under several heads, like, sectoral funds, which invest the equities in particular sectors of the market; thematic funds, where they tend to follow a fixed theme for stock selection; and focused equity funds, a multi-cap funds, where funds invest in a predefined number of stocks. Apart from this, there are market cap classifications, like multi-cap, large-cap, mid-cap, and small-cap. Based on investment style, there are contra funds and value funds.
5. Tax Benefits
U/s 80C of the IT Act, 1961, ELSS offers tax benefits up to INR 1.5 lakh/financial year from your yearly taxable income.
6. Equity Fund Taxation
The capital gains dividends are taxable in LTCG or long-term capital gains and STCG or short-term capital gains. LTCG applies specifically to MF units that are held for over a year. Up to a limit of INR 1 lakh, there is no tax liability. Above that, it attracts an LTCG of 10% without indexation benefits. STCG is applied on mutual fund units held up to 1 year @15%.
DDT has abolished in 2020 Aril. However, there has been a new introduction of Section 194K where dividends paid over INR 5000 are subject to TDS @ 10%. Depending on your tax slab, you will be taxed on the amount of dividend received. Any TDS deduction can be deducted from tax liability on income from the dividend.
8. Financial Targets
Each equity fund is unique with different objectives, risk levels, track records, and composition. The investors too are individually unique. Depending on your requirements, risk appetite, and risk tolerance, you have to proceed accordingly.
9. Fund Performance
Before choosing any particular fund, you need to review the fund’s performance over the last 5 years. This will offer you a potential picture of expected returns.
10. Risk Factor
Understanding the level of the risk factor involved in every mutual fund investment is essential before making the investment.
11. Volatility Eventually Reduces
When you maintain a longer investment tenure, the market risks eventually reduce over time. Equity funds are considered as best and perfectly suitable for long-term investment aims.
12. Gauging The Timing
In the case of mutual funds, timing is everything. A critically timed investment of the right amount can earn you a potentially golden fortune. Focusing on the current market trends is the main key point of equity fund investment. However, you must not get overambitious regarding your investment planning strategy.
Contemporary market circumstances play a crucial role in determining the returns from equity mutual fund investments like Axis mutual fund, Axis equity fund, etc. However, you must understand that there exists a difference between a well-performing fund and a well-performing market. You must assess and analyze all the essential parameters well before making the investment.