Why Should You Invest in Equity Funds in 2022?

Should you invest in equity mutual funds in the next year? Although these funds are high-risk funds, they have the potential to offer high returns. The equity market in India has remarkably recovered from the COVID-19 crash in 2020. Indian equity funds are likely to make more than 25% gains by the end of 2021, according to The Economic Times. This is an enviable achievement compared to past records. So, going by the recent trends of the performance of equities in India, you may choose to invest in them soon.

There can be only two risks to that in 2022. One is the possible normalisation of monetary policies by the RBI and global central banks and an interest rate hike. While there is nothing much you can do about it yet, as mentioned, it's worth taking some risk to expect high returns from equities. The second risk to the market can be the 2022 elections in Uttar Pradesh. However, this risk is limited since recent trends reveal that state election outcomes are having a decreasing impact on the general elections. Evidence is the results in Chattisgarh, Madhya Pradesh and Rajasthan in the run-up to the 2019 elections.

That being said, here are the general reasons to invest in equity mutual funds.

Cost-Effective Investments

You can invest in equities via a Systematic Investment Plan (SIP). Then you can invest as little as ₹500 per month. The amount will be automatically withdrawn from your account every month. By choosing an SIP to invest in equities, you can beat the market volatility with the power of rupee cost averaging.

Capital Growth

Equity funds can help you accumulate a substantial amount of wealth as high returns in the long run by beating market inflation. When the prices of stocks go up, you can see it as an appreciation in your capital.

Diversification of Your Portfolio

By investing in an equity fund, you can get exposure to a variety of stocks. That means even if some of the stocks don't perform well, you can still grow your capital from the performance of the other stocks. Thus, equities can help you diversify your portfolio profitably.

Tax Benefits

You can get tax benefits by investing in an equity-linked savings scheme (ELSS). That is, you can enjoy a tax deduction of up to ₹1.5 lakh on your taxable income. This, as a result, can reduce your overall tax liabilities.

Professional Management of Funds

Professional experts, called fund managers, manage the equity mutual funds that you invest in. They study the market, compare the performance of different stocks and invest in the best-performing ones to deliver maximum returns to you.

Liquidity

You can redeem units of equity funds anytime at the applicable net asset values. Thus, you can enjoy liquidity. An exception is ELSS schemes since you can't redeem their units before the completion of the lock-in period. Equities also allow you to purchase more units at lower NAVs when the market is down.  

When investing in equities, make sure to use a net worth calculator to see how much you own minus what you owe.