Difference between Debt and Equity

Mutual fund investments have become a popular method of safekeeping and growing your funds for future financial goals. However, a few schemes come handy during the need to save money, grow money and provide security to the funds, such as equity and debt fund.

Both being most-chosen by newcomers who wish to grow their money in various ways, equity fund and debt mutual funds have gained their place as two trustworthy schemes in the recent market.

Now, what is the equity fund? Well, unlike debt fund which invests in government-oriented securities and bonds, equity funds opt for company stocks and shares. Such a mutual fund scheme believes in thorough market research of company portfolios, scanning the market for fluctuations and provides their investors with stocks that perfectly suit their needs.

Equity funds, unlike debt funds, plays with the idea of risk factors, as their investors believe in studying the market, understanding the risk formats to gain the most profitable returns out of the investment.

A scheme so diverse provides long-term and profitable returns, with benefits such as tax deduction from income (ELSS scheme), diversified investment options through various sectors and even a Systematic Investment Plan (SIP).

Not to forget, you can always choose from a plethora of options under market capitalization such as:

• Large Caps: Stocks from dominating markets with stable activities and low-risk factors.
• Mid Caps: Although there are more risk-factors in mid-cap stocks, the potential growth is much more than large-cap here.
• Small Caps: small or micro-cap schemes have the potential for growth in the market as from new companies, hence there is a large risk-factor involved. 

Now that we know about what is equity mutual funds scheme, let's understand the debate, that is equity funds vs debt funds

Here are some of the difference between debt and equity funds:

• Nature

Debt mutual funds invest mostly in non-convertible debentures, government bonds and securities in the market. Such units provide a fixed-income benefit to the public who wishes for lumpsum and steady return from the investment. Such funds have lower-risk rates and more secure.

Equity funds work with company stocks and shares of various caps after scanning the market and understanding potential returns. Investors of equity funds wish for profitable earnings and growth in their capital. Such funds can be volatile due to fluctuations, recessions and currency value changes in the market. 

• Taxation

For debt fund schemes, the taxation on short-term investment depends upon the market while for long term (more than 3 years) is 20% Whereas, short-term equity funds fall under a 15% tax rate while long term ( more than 1 year) remains tax-free. 

Hence, if you have a high-risk appetite and desire profitable returns for money growth, opt for Equity funds. 

Benefits of Mutual Fund Investment

If you wish to know what are the benefits of mutual funds and how they can help you create long-term wealth, this article can help you. We detail the benefits of mutual fund investment and give you solid reasons why you should start an SIP (Systematic Investment Plan) so you can meet your financial goals and prepare for the future.

Liquidity

It is very easy to purchase and exit mutual funds unless you have invested in a closed-ended scheme. If you need urgent cash, you can sell your fund units at any time. However, some plans impose a pre-exit penalty or exit load, so be aware of the terms and conditions. Also, keep in mind that mutual fund transactions occur only once per day after the scheme releases the day’s NAV. 

Safety

One of the main benefits of investing inmutual funds is safety as they are as secure as bank products. Mutual funds are strictly governed by regulatory bodies like AMFI and SEBI, and you can easily learn about the credentials of a scheme from them. Plus, they provide a grievance redress system to help resolve investor concerns promptly and satisfactorily. 

Save Tax 

You can save tax under section 80C by investing up to Rs. 1.5 lakh a year in an ELSS (Equity Linked Savings Scheme). This scheme has consistently provided higher returns compared to other tax-saving plans like FD. Thus, tax-efficiency through ELSS investment is one of the key benefits of mutual funds. 

One-time or Systematic Investment 

If you have extra money at hand you can opt for a lump sum one-time investment. Salary earners who have to contend with monthly expenses can opt for a SIP on a quarterly or monthly basis and invest steadily in a good scheme. SIP installments can be as low as Rs. 500 per month, so you can start with a small amount initially and then enhance it as you grow in confidence and your earnings increase over time. 

Diversification

If you are averse to the market risks of equity-based schemes, you can opt for a diversified plan that includes money market instruments, debt funds, etc. This helps you to avoid putting all your eggs in one basket and also avail the guaranteed returns from fixed income instruments. In this way, you can minimize your risk and the possibility of loss. 

Conclusion

Other benefits of mutual fund investment include expert management, reduced expenses for bulk transactions, fast and painless investment process, automated payments, and creation of long-term wealth. So do your homework and select a suitable mutual fund scheme to invest in based on your appetite for risk and the returns you wish to avail.

Mutual Fund Calculator

Economics is the recent talk in the town! A global slowdown is on the rise and some economists say that a recession is expected in 2020. In such a situation, it is crucial to invest our money in the right places. At Mutual Fund Sahi Hai, you have the option to invest through tens of diverse Equity, Debt or Liquid funds.

Mutual Fund Calculator with Inflation

Basically, mutual funds invest the money in stocks and bonds. So, why should we invest through them and not directly? The simple answer is that we have professional managers who do a lot of research about various stocks and bonds and then invest accordingly. For a small fee, you not only get a well-qualified fund manager but also get administrative and accounting services for the investments. Another question that arises is that why one should invest through mutual funds rather than investing in fixed deposits? FDs give a fixed return every year and are thus considered a safe investment. However, it usually gives fewer returns than the inflation rate. 

What is inflation? In layman’s term, it is the increase in the prices of goods and services over time. So, if you put Rs. 100 in the bank at a 6% annual rate, you would get Rs. 106 at the end of the year. But, the inflation rate of India is 7% which puts you in a loss. This is where mutual funds beat the fixed deposits. We provide a mutual fund calculator in which you can calculate the inflated amount to your present amount. A sum of Rs. 100,000 would be equivalent to Rs. 197,000 at an annual inflation rate of 7% over a period of 10 years. Our mutual fund calculator with inflation tells you how much returns your investments need to make to main the present standard of living. With us, you can make the right investments and get inflation-beating returns! 

For those who do not wish to invest all the amount at once, we also provide a systematic investment plan (SIP). It allows you to invest small amounts in periods rather than the whole lump at once. The mutual fund return calculator calculates the future value of your periodic SIP investment as well. It also helps you to achieve a target goal by stating the periodic SIP investment that you would have to make for a certain number of years. 

However, these mutual fund calculator with inflation is just for illustrations, as mutual funds do not give a fixed rate of return. It all depends on the volatility of the market and the economy. But, it is a great convenience for people who invest their money in future requirements.