What are Equity Funds?
Equity funds come from the personal moneys of the partners (e.g.: savings, inheritance or personal borrowings from financial institutions, friends, relatives and business associates), and from the stockholders. Equity funds are normally unsecured and have no registered claim on any of the assets of the business, freeing those up to be used as collateral for the loans (debt financing). Higher equity creates ” increased leverage.” Leverage reflects the business’s ability to attract other loans and investment. An equity position of $30,000 may enable the business to obtain debt financing of up to three times that amount. But a fully leveraged business has no further ability to borrow money. How Much Equity Should I Have In My Business? Twenty-five to fifty percent of your own money in the business shows a lender or investor that you are committed to the project by being prepared to share the risk. As the business grows, you should always try to keep your own equity (ownership) at approxim
Equity funds are a type of mutual fund that puts money into different kinds of stocks. Investors buy shares in mutual funds with other people. The fund is managed by a professional fund manager and a team of professionals. They have the resources to research companies and track performance to decide which stocks to buy. Fund managers who look after equity funds also determine how much of each stock the fund should hold. Along with a variety of stock, equity funds should have a certain amount of money held back in cash reserves. Prospective investors should take a look at the annual report that is published to find out what companies the fund manager has chosen to invest in and how much of the equity funds’ assets are put in each one. You will also want to find out where the companies are located. For example, some equity funds buy stocks from small-to-medium sized companies only, while others focus on a particular type of stock. You may want to buy shares in equity funds that only deal
Apart from ELSS schemes, diversified equity schemes are a good investment considering that capital gains in equity funds below one year are taxed at a rate of 10% and over a year are tax-free. This option can be best excercised using a Growth Plan offered by mutual funds. The primary objective of a Growth Plan is to provide investors long-term growth of capital. Dividend paid in Dividend Plans is tax free, and no distribution tax is deducted. However, every time we buy or sell equity shares a Securities Transaction Tax, STT, of 0.25% is paid and further when you redeem your investment, again STT is deducted from your redemption price. So what strategy will help to reduce the burden of STT to the minimum possible extent? Investment expert Krishnamurthy Vijayan advises to choose the dividend option, while it remains tax-free. “Though both decisions are by and large tax-neutral, your STT will go down if your profits have already been taken out by you in the form of dividend”, he adds. Ann
