Equity Mutual Funds

Investments have evolved a lot since mutual funds came into the picture. One of the reasons people prefer mutual funds is that it has the potential for higher returns than traditional saving methods such as savings accounts and fixed deposits. One of the most preferred investment options among mutual funds is Equity Mutual Fund.

What are Equity Mutual Funds?

Equity mutual funds are the type of investment scheme where the assets are invested into shares/stocks of different companies. The objective of investing in Equity Mutual funds is to gain a significant return. According to Securities & Exchange Board of India (SEBI), any fund with at least 65% investment in stocks/shares of a company and a minimum 10% in debts is termed as Equity Mutual Funds. These funds are known for better return compared to other forms of investments. However, there is an element of risk, as the returns depend on market conditions.

Classification of Equity Mutual Funds

Mutual Funds are classified based on the investment preferences

Tax benefit funds Market Capitalization Investment Strategy

Equity Linked Savings Scheme (ELSS) invests mainly in 80% equities related instruments. It comes with a minimum lock-in period of three years. It comes with a dual benefit of tax savings and wealth generation.

Market Capitalization refers to the total market value of the outstanding shares of a company. Mutual fund investments based on market capitalization are as follows.

Large Cap - Investment plans investing 80% of the assets into shares of the companies with big capitals (usually top 100). The returns on these investments are generally high than the other options in this bracket.

Small Cap - Investment plans where 65% of assets are invested in companies with low capital, usually ranking 251 and after.

Mid Cap - Investment plans, where 65% of assets of the assets are invested in mid capital companies (101-250).

Multi-Cap - It is the scheme where your funds are divided between Large/small/midcap companies. The fund manager allocates the assets according to market conditions.

Based on the investment strategy, we can classify Equity mutual funds into several options.

Investments made into particular sectors such as Information technology, FMCG, Real Estate are termed as Sectoral funds.

Thematic Funds - Allocation of funds into multiple sectors to mitigate the risk fall under Thematic Funds.

Focused Funds - Funds with a focused pattern by investing in a specific number of stocks (maximum 30).

Contra Equity Fund - These funds analyze and invest in stocks that are underperforming, with the hoping that these stocks will perform better in the future.

Advantages of Investing in Equity Funds

High returns

Compared to traditional investment plans and another form of funds, investing in Equity Funds gives you a chance for more significant returns. Upon analysing historical returns, investment in equity funds, it is evident that it provides substantial returns than debt funds.

Expert Assistance

Every mutual fund scheme is under the control of a fund manager who has complete experience in the functioning of the markets. The fund manager seeks assistance from a financial analyst team who assists him by providing a critical analysis about asset placements based on market conditions.

Diverse portfolio

As your investments are diversified into a diverse range of portfolios to minimize the risk. It ensures even during bad market conditions, some of your stocks make up for the losses.

Liquidity

You have the option to liquidate your fund by redeeming some units of funds when you are in need. You will receive your corpus within a week after redeeming your fund units.

Low Investment costs

You can start a Systematic Investment Plan (SIP) with a sum as low as Rs. 500 per month.

Tax Saving

With tax saving schemes like ELSS, you can claim a tax exemption up to Rs. 1.5 Lakhs.