An equity fund can also be classified as a growth fund because of its ability to create wealth or support capital appreciation. Scroll through this article to learn more about the types of equity mutual funds and the key advantages of investing in them.
Depending on your investment style, equity funds can be categorized into the following:
1.Active Fund: Here, the fund manager keeps looking for the right stocks to invest in. The fund manager will discover the right stocks by taking into account the performance of the companies.
2. Passive Fund: In this case, the fund manager attempts to create a portfolio by closely observing the movements of Sensex and Nifty 50.
The different types of equity mutual funds, according to your investment strategy, include the following:
1. Focused Equity Fund: These funds are responsible for investing in a small pool of specific stocks. The upper limit in a pool of these funds is 30.
2. Theme and Sectoral Fund: These types of equity funds focus on specific sectors like IT and banking. They might also restrict themselves to theme-based investing in international markets, emerging markets, and more.
3. Contra Equity Fund: This type of equity mutual fund has a contrarian approach toward investing. They always focus on good stocks that are undervalued in the market with the hope that the underdogs will give their best in the long run.
The various types of equity funds according to market capitalization include:
1. Small-Cap Funds: They invest a majority of their total assets in companies having less than Rs 5000 crores as their market capitalization rates. A large number of companies on the Indian stock exchanges come under this category.
2. Mid-Cap Funds: They are focused on companies with a market capitalization rate between Rs 5000 crores and Rs 20,000 crores. The returns from mid-cap funds are a lot higher than that of large-cap funds.
3. Large-Cap Funds: These funds have their capital in firms with a market capitalization of Rs 20,000 crores and more. They are not as volatile as small-cap and mid-cap funds.
4. Multi-Cap Funds: These funds resemble the characteristics of small-cap, mid-cap, and large-cap funds to help with risk mitigation.
Depending on tax treatment, equity funds can be classified into the following categories:
1. Equity Linked Savings Scheme: You can invest in equity-oriented mutual funds where 80% of your investments are done toward equity and related instruments. One of the greatest advantages of these funds is that they help you save Rs 1.50.000 as an annual tax deduction.
2. Non-Tax Saving Equity Funds: Apart from ELSS, all equity funds are non-tax saving schemes. Therefore, you won't be able to claim any tax benefits for investing in any of these equity funds.
The kind of mutual fund that focuses mostly on stock investments is an equity mutual fund. Your money is combined with the money of other investors and invested in a variety of equities when you invest in an equity mutual fund. The money that is left over is invested in debt securities, money market instruments, etc. The performance of the equities in the fund's portfolio determines how well it performs.
The top advantages of investing in equity mutual funds include the following:
1. Portfolio Diversification: Most equity funds help spread your investments across different stocks to keep your risk on the lower side.
2. Professional Fund Manager: Equity mutual funds come with experts who will look after your assets using the best standards of portfolio management according to industry regulations.
3. Investment Flexibility: You can invest in equity funds via lump sum or a systematic investment plan.
4. Entry and exit flexibility: Open-ended equity funds enable investors to enter and exit whenever they want.
Are you interested in entering the equities market but lack the time and expertise to closely monitor it? In that case, you can always go with equity mutual funds because they come with a fund manager to look after your assets. So, enjoy the high growth of equities without too much risk from equity mutual funds.
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