Equity Mutual Funds give its investors a complete flavor of Equity Stocks in terms of similar returns and exposure in stock market. Investors have the variety of equity mutual funds to invest in based on their risk and rewards expecations.
Written by CA Pankaj Chhabra – 
& Roopali Tomar –
An equity mutual fund is a type of mutual fund scheme that invests major percentage of its corpus in equity and equity-linked securities.
The asset allocation is as per the scheme’s investment objective in terms of safety, capital gain, earnings, etc. These schemes are best suited for long-term investors as they have the potential for long-term capital appreciation.
You can invest your money in the fund in two ways either via a Systematic Investment Plan (SIP) or lump-sum, which then gets invested in various equity stocks as per their allocation in the fund.
Let us understand how equity mutual funds function in more detail.
To Read More about Basics of Mutual Funds
What are Equity Mutual Funds?
An equity mutual fund invests largely in the stocks of various companies to generate maximum returns. These investments are linked to higher risk assets as compared to other types of mutual funds. Additionally, they are not “one size fits all.”
There are a variety of equity funds that are classified by their investment objectives which needs to be mapped to the investor’s risk profile.
Types of Equity Mutual Funds:
Equity mutual funds can be categorized based on the investment mandate and primary investment avenues. Knowing them can help you in optimizing your investments.
The following are the categories of Equity Mutual Funds:
1. Large-Cap Equity Mutual Funds
As per SEBI guidelines, these schemes invest in companies that rank between 1 to 100 in terms of market capitalization.
Large-cap equity funds are the least risky investments as compared to other types of equity mutual funds.
These investments are known to offer stability and sustainable returns over time.
2. Mid-Cap Equity Mutual Funds
These schemes invest in companies that rank between 101 to 250 in terms of market capitalization. Mid-cap funds are less risky than small-cap equity funds, but are considered riskier than large-cap equity funds.
However, mid-cap stocks tend to offer better growth potential as compared to large-cap stocks.
3. Small-Cap Equity Mutual Funds
Small-Cap Equity Funds invest in companies that rank above 250 in terms of market capitalization.
These funds are riskiest compared to large- or mid-cap equity funds, but they also have the potential to deliver the highest returns.
4. Large- and Mid-Cap Equity Mutual Funds
These mutual fund schemes divide the equity allocation equally between large- and mid-cap funds to offer stability and high returns.
The allocation to both the market caps is 35% each of the total asset value.
5. Multi-Cap Equity Mutual Funds
These mutual fund schemes invest in stocks across all market capitalizations, i.e. small-cap, mid-cap, and large-cap companies.
The fund manager decides the proportion of these investments according to the prevailing market conditions.
These funds are meant for investors who do not want to be restricted to any particular industry while simultaneously seeking exposure across the market.
What advantages can equity mutual fund investments offer?
There are many benefits of investing in equity mutual funds. A few of them are:
a) Professionally Managed
Fund managers are market experts who professionally manage your investments. These experts study the market, analyze the past performance of various companies, and invest in the performing stocks that could deliver optimal returns.
b) Easy on Pocket
You can invest in equity funds through the SIP (Systematic Investment Plan) method. Wherein you can make weekly, monthly, or quarterly investments as low as ₹500.
Investing via SIP is a popular method of investing in equity mutual funds as it helps to beat the volatility of the equity markets through rupee-cost averaging.
c) Growth of capital
Equity funds are considered one of the best financial instruments as they can offer maximum returns to help you (the investor) beat inflation. If the prices of stocks increase, you will be able to see it as an appreciation in your capital.
A considerable amount of wealth can be accumulated over the long term through investments in equity mutual funds.
d) Portfolio Diversification
When you invest in an equity mutual fund, you will get exposure to different stocks. So, even if there are some stocks in your portfolio that are not performing well, you will still achieve capital gains from the fund’s performance of other stocks.
In this way, investing in equity funds can help you in the diversification of your portfolio.
FAQs:
Q: Who should invest in Equity Mutual Funds?
Ans: Anyone who want to earn better returns as compared to returns from other asset classes should invest in Equity Oriented Mutual Funds.
Q: Whether Equity mutual funds are for long term or short term period?
Ans: Period of investment is entirely depending upon your financial goal. Although the general perception is Long Term when it comes to investment in equity mutual funds.
Q: What are the factor that should be considered while investing in Equity Mutual Funds?
- Your decision to invest in mutual funds should be synced with your investment horizon, and risk profile, among other objectives. The same is the case for equity mutual fund investments.
- If you have a long-term goal, it is advisable to invest in equity funds.
- It will provide your funds with the much-needed time to combat market movements and their fluctuations and generate good returns over a long period.
Q: How are Equity Funds performing in India?
- Among the numerous categories of mutual funds in India, equity mutual funds generally deliver relatively higher returns, in the range of 10% to 18% p.a. on an average in the long-term period say 5 years or 10 years.
- The returns may fluctuate depending on the overall economic conditions and market movements.
- To earn good returns that are aligned with your expectations, you should choose your investment fund carefully.
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