Mutual fund schemes have become a straightforward and effective means of accumulating wealth over the long term. Among the various types of mutual fund schemes, including equity funds, debt funds and hybrid options, equity mutual funds are particularly well-suited for long-term financial objectives. As indicated by their name, equity funds primarily invest in equity assets, specifically stocks that are traded on stock exchanges. The returns from equity funds are neither fixed nor guaranteed; rather, they are linked to market performance.
Consequently, investments in equity funds are subject to market fluctuations, resulting in the net asset value (NAV) of these funds experiencing variability over time. Historically, it has been observed that equities tend to appreciate over extended periods. Therefore, for investors, equity funds can be viewed as a financial instrument with the potential to yield returns that outpace inflation over the long term, although this may not be the case in the short to medium term.
If your financial goals are oriented towards the long term, specifically 8 to 10 years in the future, systematic savings through equity funds may enable you to accumulate a substantial corpus. However, if you prefer not to invest in equity funds and are seeking alternative investment avenues, there are scenarios where equity funds may not align with your financial needs.
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Below are some circumstances in which equity funds may not be appropriate for you. If you do not identify with any of these situations, it may be advisable to consider maintaining your investment in equity funds.
Seeking a stable return
Many retirees prioritize a stable return on their investments, as they require a consistent income to cover their retirement expenses. For these individuals, capital preservation takes precedence over wealth accumulation, leading them to favor fixed-income investments. Such investments typically offer lower returns and are often subject to taxation. The real returns, adjusted for inflation, tend to be minimal and are not conducive to wealth generation. Nevertheless, it is advisable for retirees to maintain some exposure to equity-oriented funds, including hybrid funds, to counteract inflation during their retirement years. If your goal is not a fixed return and you aim is to build a corpus for long-term objectives, it is essential to leverage the benefits of compounding by going for a mutual fund SIP.
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