How is an equity fund different from a debt fund? Which one should you invest
A mutual fund that invests primarily in stocks / shares of companies is known as an equity fund. Growth funds are another name for them. You have two choices when it comes to investing in stocks. One option is to buy and sell stocks directly, while the other is to invest in stock mutual funds.
Equity funds are either active or passive.
Active Fund – A fund manager scours the stock market, researches the company, analyzes performance, and looks for the best stocks to invest in.
Passive Fund – The fund manager builds a portfolio that closely resembles a well-known market index, such as the Sensex or the Nifty Fifty.
Also, market capitalization, or the capital market value for all of a company’s shares, can be used to divide equity funds. Funds can be classified into large caps, mid caps, small caps or micro caps.
An equity fund invests primarily in shares of companies and aims to offer ordinary investors the benefit of professional management and diversification.
Advantages of equity funds
- Risk mitigation
- Professional fund management
A debt fund is also a mutual fund system, but it is quite different from a stock fund. Debt funds invest in fixed income instruments that provide capital appreciation, such as corporate debt securities, corporate and government bonds, and money market instruments. Fixed income funds or bond funds are other names for debt funds. In the eyes of the investor, the nature of the investment makes it a heritage protection fund.
Benefits of debt funds
- Low cost structure
- Stable returns
- High liquidity
Loan funds are great for investors who want regular income but don’t want to take the risks of investing in equity funds. However, debt funds also come with risk, but it is less risky compared to equity funds.
Debt mutual funds would be a good alternative for saving investments such as bank deposits. If you’ve invested in traditional fixed income products and are looking for another investment destination with a steady return and low volatility, debt funds might be a good choice.
Debt funds help you achieve your financial goals in a more tax-efficient way and therefore achieve better returns.
Debt funds work the same as other mutual fund plans in terms of how they work. However, they outperform stock mutual funds in terms of safety of capital.
Long term goals are best served by equity funds, while short and medium term goals are best served by debt funds. Your risk appetite should also be taken into account, but if you are young, equity funds are the best option.
To keep up with inflation, retirees and seniors also need exposure to equity funds, albeit at a lower level than younger people. There are several things to consider when deciding which class of mutual fund to invest in.