How are you all? Investment going well!
Through previous articles, we tried to clear the concept of mutual fund investments, and why it is the most suitable option for one’s investment plan.
Mutual fund investment is most preferred because it has every kind of investing opportunity, that aims to stand for investor’s goals and suitable to their risk profile, selecting a fund or scheme, among the pool of mutual fund schemes, is completely on investors requirement.
Today, through this article, we are going to define one of the main categories of mutual funds, that is Equity fund, along with its features. Read this blog, and get to know about funds, it will help you decide your investment in a mutual fund.
Equity Funds is one of the main categories of mutual funds, this fund has its own significances and risk associated, with it. Let’s understood it’s concept!
What are equity funds?
Equity funds, also popular as stock funds, are a type of mutual fund scheme, that focuses to generate high returns, by investing in stocks or shares of companies. In these funds, the returns are decided, by the market performance of shares of companies. Equity funds are also known as Growth Funds.
Specifications of Equity Funds
Equity funds do have all the features of a mutual fund, some are explained here:
- Professional Fund Management: Being a type of mutual fund, equity funds do provide the facility of professional fund management. You can hire a fund manager, for your investment in Equity funds, because professional assistance, helps to maintain low risk on your profile, so that your investment may flourish its returns. Also, you can relax and not spend much time in case your investment is managed by a professional.
- Good returns in the long run: Equity funds are featured to yield a good return if carried for the long term. Mutual Fund Professional, do advise the investors, with a long-term goal, like retirement plans, to invest in Equity funds.
- Tax Benefits: Returns generated in your mutual funds are subjected to tax exemption, but there are some funds, that do avail the tax benefit option on your return. ELSS (Equity Linked Saving Scheme) is a kind of tax-saving investment under Section 80C of the Income Tax Act that gives you tax benefits on your return.
- High Liquid Funds: Equity funds are liquid in nature, any investor can redeem their unit, in case of their requirement, at any time, if their fund is not associated with any kind of lock-in period. The value of the units is decided based on the current market value of the asset. Only ELSS funds have a lock-in period of three years, that is investors cannot redeem their ELLS funds, during its lock-in period, after that, they can easily redeem them.
- Avails the option of Lump-Sum and SIP investment: Investors can either invest via SIP or Lump-sum in equity funds as per their comfortability.
- Diversification: Equity funds provide a variety of funds, for investor's portfolio diversification. By investing in equity funds, you can get exposure to several stocks by investing a nominal amount.
Types of Equity Funds
Equity funds are classified into many sub-categories based on different parameters. Availability of a number of different schemes, provide a wide option for diversification of investor’s portfolio.
Equity funds categorized based on market capitalization, have five subcategories, that I have listed here:
- Large-Cap Equity Funds: These funds focus its investments in companies with large market capitalization, to generate good returns.
- Mid-Cap Equity Funds: Mid-cap fund is an investment fund that focuses on companies with a market cap in the middle range of listed stocks.
- Mid-and-small-cap funds: These funds diversify its investments in between mid and small-cap companies and are termed as mid and small-cap funds
- Small-Cap Equity funds: These funds invest in shares of companies that have smaller market capitalization.
- Multi-Cap Funds: These funds invest in equity shares of companies of different market capitalizations. These funds incorporate large-cap, mid-cap, and small-cap stocks in the portfolio in a specific proportion.
Equity funds are categorized into two sub-categories, based on sector and themes:
- Sector Funds: These kinds of funds invest solely in businesses or companies that operate in an industry or sector of the economy.
- Thematic Funds: These funds invest across different sectors related to the common theme. Like if the fund is built on an infrastructure theme might invest equities in construction companies, cement companies, steel companies, and more related sectors.
Benefits of investing in Equity Funds
Well, benefits of investing in equity fund investment are like, benefits of mutual fund investment, some of which I am listing here:
- Expert Money Management: Investing in equity funds, requires a value search of stocks and sectors to invest in, which of course requires your valuable time and effort, but why to waste your time, if there is the best alternative. The solution is to leave the stock-picking to an expert fund manager by investing in an equity fund.
- Low-cost of equity funds make it available to a large number of people belonging to middle and low sections of society.
- Equity funds provide a good option for diversifying investor's portfolios.
- Availability of SIP (Systematic investment plan), make it more convenient.
- Equity fund provides a good liquidity feature to its investors.
Who should Invest in Equity Funds?
Equity funds are high risk associated funds and are most suitable for long-term capital gains. Your investment in equity funds should be decided after analyzing your risk profile and deciding your investment tenure.
Investors who can bear the high risk and can stay invested for the long-term, then Equity funds are featured for them. Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best mutual fund, for your investments as per your requirement.
As of now, you are aware of the concept of Equity funds and its benefits, analyze your goal and risk profile, and plan for your investment.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Best Equity funds which have performed well in the past 5 years –
Equity Fund Name
Mirae Asset Emerging Bluechip Fund-Growth Large & Mid Cap Fund
Franklin Build India Fund – Growth Sectoral/Thematic
HDFC Small Cap Fund-Growth Small Cap Fund
Sundaram Rural and Consumption Fund – Growth Sectoral/Thematic
Axis Midcap Fund-Growth Mid Cap Fund
DSP Natural Resources and New Energy Fund – Regular Plan-Growth Sectoral/Thematic
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).