Nowadays,mutual funds are preferred by numerous investors as an investment tool. However, it isdifficult to choose a mutual fund because of the different options available. Mutual fund investments require a careful approach to avoid probable losses. Different variants have different risks and therefore firstone must understand the basics of the different mutual fund schemes. One of the mutual fund investment options is an equity fund investment.
What are equity funds?
An equity mutual fund allocates funds to theshares of different companies. The fund manager attempts to maximise returns by spreading equity investment across different sectors. People invest in equity funds to enjoyhigh returns. However, you must brace yourself for some risks because their performance relies on market conditions.Also, just like mutual funds, it is important to note that equity funds also have different variants. Let’s learn all about the different equity fund variants.
What are the different types of equity funds?
Here is a look at the different equity funds that are available as an investment option:
- Large-cap funds:
This equity fund investment allocates at least 80% of the assets to large-cap stocks,i.e.,the stocks of the top 100 companies in terms of market capitalisation.
- Mid-cap funds:
They are mandated to invest approximately 65% of their assets in mid-cap stocks. Mid-cap stocks usually rank between 101 and 250 in terms of their market capitalisation.
- Small-cap funds:
Like mid-cap funds, even small-cap funds invest at least 65% of their assets in small-cap stocks. The only difference is these stocks rank below 251 according to market capitalisation.
- Flexi-cap funds:
They invest across large-, small-, andmid-cap stocks. A minimum of 65% of total assets is allocated to equity andrelated instruments in flexi-cap funds.
- Large &mid-cap funds:
Approximately 35% of their assets are allocated to large-cap stocks and the other 35% is invested in mid-cap stocks in these funds.
- Multi-cap funds:
They are instructed to invest 25% each across all market capitalisations. In total, they invest 75% of their funds in stocks.
- Dividend yield funds:
They allocate their assets to dividend-yielding stocks.
- Focused funds:
A fund that invests in a portfolio consisting of at least 30 stocks maximum.
- Contra funds:
Contra funds invest at minimum 65% of their assets in stocks.The fund allocation is based on a contrarian investment strategy.
- Sectoral or thematic funds:
The fund managerregularly allocates at least 80% of the fund’s assets to a dedicated sector or theme.
- ELSS or equity-linked savings scheme:
Equity-linked saving schemes are tax-saving mutual funds.You are eligible for tax deductions of up to ₹1.5 lakhs under Section 80C by signing up for this variant of equity funds. These funds allocate at least 80% of total assets in stocks and have a mandatory three-year lock-in period.
Conclusion:
Equity funds have a high risk-return ratio capable of withstanding market volatility in the long run. Hence, an equity fundiswell-suited for long-term investment. Choose the right equity fund variant to suit your financial goals, risk tolerance, and investment horizon.
