Equity vs Debt Mutual Funds: Making the Right Choice
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When it comes to investing in mutual funds, investors often find themselves at a crossroads between equity mutual funds and debt mutual funds. Each has its own unique features, benefits, and risks. Understanding these differences is essential in making an informed choice. Equity Mutual Funds Equity mutual funds primarily invest in shares of companies listed on stock exchanges. These funds aim for capital appreciation over the long term. Equity mutual funds are known for their potential to deliver higher returns compared to other types of mutual funds, though they also come with higher risks. Consider an example where you invest ₹1,00,000 in an equity mutual fund. If the fund delivers an annual return of 12%, after one year, your investment would grow to ₹1,12,000. Over a period of five years, assuming the same annual return rate, the investment would grow to approximately ₹1,76,234 due to the compounding effect. Investors should be aware of market volatility as the primary risk a...