Equity Mutual FundEquity Mutual funds invest in stocks of companies. Equity mutual funds carry high risk but also provide higher returns than debt mutual funds. Equity mutual funds are the best long-term investment option for beginners.
Drawbacks of Equity Mutual FundsThe disadvantages of equity mutual funds are: 1. Not for the short-term: Equity mutual funds are too volatile in the short-term. Therefore you should invest in equity mutual funds only for long term goals. 2. Not for conservative investors: Equity mutual funds are subject to market risk. So, if you have a low risk appetite, then you should invest in debt mutual funds instead. 3. If you expect guaranteed returns: Since equity mutual funds invest in the stock market, the returns are not guaranteed. If you want guaranteed returns then you should invest in bank FDs. Key takeaways:
- Not suitable for short term investors
- Not suitable for conservative investors
- Not suitable for investors who want guaranteed returns.
- Not suitable for investors who are scared of market volatility
Debt Mutual FundDebt mutual funds invest in debt instruments like company debentures, government bonds, and other fixed income assets. Debt mutual funds are much safer than equity mutual funds.
Drawbacks of Debt Mutual FundsThe disadvantages of debt mutual funds are: 1. Low returns: While debt mutual funds provide higher returns than Bank FDs, their returns are much lower than equity mutual funds. 2. Not 100% safe: Debt mutual funds also face credit risk, reinvestment risk etc. So, your investment is not safe and the returns are also not guaranteed. 3. Not for long term: Debt mutual funds are suitable for short term goals. But if your goal is 10 years down the line, then you should invest in equity mutual funds instead. 4. Not for Aggressive investors: Debt mutual funds have low risk but also provide low returns. If you are an aggressive investor, then debt mutual funds are not suitable for you. Key takeaways:
- Low returns.
- Not 100% safe
- Not suitable for aggressive long-term investors.