3 Important Things to Know Before You Invest in Equity Mutual Funds

#1 – You are investing in diversified business

Investing in an equity mutual fund is not like putting money in a fixed deposit or real estate. When you invest in an equity mutual fund, it invests your money in a portfolio of companies.

Equity Mutual funds are a way to invest in a number of stocks using one single investment and get it managed by an experienced and well qualified fund manager.

#2 – You are investing for long term

No business earns exceptional returns over a short term. Now as you know that you are actually investing in a business when you are investing in an equity mutual funds, that too in multiple companies, the great returns will come over a long term.

Some companies will not do great, some of them will do average and some of them will grow exceptionally. And when you do the average, you will get very good returns.

The best part is that the chances of great returns are much higher because you are diversified across various sectors, companies, management and size.

#3 – You are going to face volatility

“Mutual Funds investments are subject to market risk, please read the offer document carefully before investing”

You will hear this line often in the mutual funds advertisements on TV. A lot of first time investors who do not understand equity investments think that “Market Risk” here means that their money is at risk and they can lose all their money by investing in stock market or mutual funds.

That might be true with one particular low quality stock. But with mutual funds, it’s far from truth. Dozens of quality stocks portfolio which is monitored regularly can bring in some ups and downs in short term, but your money will not be lost at all.