Equity Mutual Funds

RIGHT SINCE ITS INCEPTION, MUTUAL FUNDS HAVE EVOLVED INTO A PREFERRED INVESTMENT TOOL
FOR MANY INVESTORS. HOWEVER, CHOOSING THE RIGHT MUTUAL FUND SCHEME CAN BE A
DIFFICULT TASK DUE TO THE WIDE ARRAY OF OPTIONS AVAILABLE. INVESTMENT REQUIRES A
CAREFUL AND WELL-THOUGHT APPROACH TO AVOID POTENTIAL LOSSES. HENCE, IT IS IMPERATIVE
TO UNDERSTAND THE BASICS OF THE DIFFERENT TYPES OF SCHEMES AVAILABLE TO YOU. HERE, WE
WILL EXPLORE EQUITY MUTUAL FUNDS AND TALK ABOUT THE DIFFERENT TYPES OF EQUITY FUNDS
ALONG WITH THEIR BENEFITS AND A LOT MORE.
What are equity funds?
AS THE NAME SUGGESTS, EQUITY FUNDS INVEST IN THE SHARES OF DIFFERENT COMPANIES. THE
FUND MANAGER TRIES TO OFFER GREAT RETURNS BY SPREADING HIS INVESTMENT ACROSS
COMPANIES FROM DIFFERENT SECTORS OR WITH VARYING MARKET CAPITALIZATIONS. TYPICALLY,
EQUITY FUNDS ARE KNOWN TO GENERATE BETTER RETURNS THAN TERM DEPOSITS OR DEBT-BASED
FUNDS. THERE IS AN AMOUNT OF RISK ASSOCIATED WITH THESE FUNDS SINCE THEIR PERFORMANCE
DEPENDS ON VARIOUS MARKET CONDITIONS.
TYPES OF MUTUAL FUNDS
LARGE CAP FUNDS: IN THESE U HAVE TO INVEST MINIMUN 80% OF THEIR TOTAL ASSEST IN EQUITY
SHARES OF LARGE CAP COMPANIES(TOP 100).THEY ARE CONSIDERED TO BE MORE STABLE AND HAVE
LOW RISK.
.MID CAP FUNDS: IN THESE U HAVE TO INVEST MINIMUM OF 65% OF THEIR ASSESTS IN EQUITY
SHARES OF MID CAP COMPANIES (101 TO 250). THESE TEND TO GIVE MORE RETURN THAN LARGE CAP
BUT ARE MORE VOLATILE
SMALL CAP FUNDS:IN THESE U HAVE TO INVEST 65% OF TOTAL ASSESTS IN EQUITY SHARES OF
SMALL CAP FUND .(251 AND BELOW LISTED COMPANIES ) THESE FUNDS OFFER GREAT RETURN BUT
MULTI CAP FUND:IN THESE USUALLY INVEST 65% OF LAREG,MIDAND SMALL CAP.
LARGE AND MID CAP FUNDS: IN THESE WE USUALLY INVEST 35% IN MID AND 35% IN LARGE.
TAX TREATMENT –BASED
CATEGORIZATION
EQUITY LINKED SAVING SCHEME(ELSS): IT IS THE ONLY EQUITY SCHEME WHICH OFFER
TAX BENEFIT OF 1.5LAKHS UNDER SECTION 80C.THESE SCHEME INVEST 80% OF THEIR
ASSESTS IN THESE SCHEME.IT HAS A LOCKED PERIOD OF 3YEARS.
HOW DOES AN EQUITY FUND WORK?
A MUTUAL FUND SCHEME IS CLASSIFIED AS AN EQUITY MUTUAL FUND IF IT INVESTS MORE THAN 60% (SIXTY PERCENT) OF ITS TOTAL ASSETS
IN THE EQUITY SHARES OF DIFFERENT COMPANIES. THE BALANCE AMOUNT CAN BE INVESTED IN MONEY MARKET INSTRUMENTS OR DEBT
SECURITIES AS PER THE INVESTMENT OBJECTIVE OF THE SCHEME. FURTHER, THE FUND MANAGER CAN CHOOSE TO INVEST IN A GROWTH-
ORIENTED OR VALUE-ORIENTED MANNER AND SELECT COMPANIES ACCORDING TO HIS ASSESSMENT OF THE INVESTMENT GENERATING
MAXIMUM RETURNS.
Features of an Equity Fund

 Lower Expense Ratio 

 In an Equity Fund, regular buying and selling of shares can lead to an increase in the expense
ratio of the scheme. The Securities and Exchanges Board of India (SEBI) has created an
upper limit for the expense ratio of equity funds at 2.5%. Also, SEBI might reduce it further.
This means more returns for investors.
 Tax Exemption under Section 80C
 The Equity Linked Savings Scheme or ELSS offers tax exemption under Section 80C of the
Income Tax Act with exposure to equity. It has a small lock-in period of 3 years and offers
great potential for earning good returns. You can also invest in an ELSS in installments.
 Portfolio Diversification
 Equity Funds allow you to gain exposure to several good equity shares by investing a small
amount. Hence, your equity portfolio is diversified and offers a better opportunity of earning
good returns.
Benefits of investing in Equity Mutual
Funds
 Equity Funds allow you to invest in the capital market without having to worry about choosing
individual stocks or sectors. Traditionally, investors with a sound knowledge of the market
would earn great returns in the equity market. However, Equity Mutual Funds employ expert
fund managers to research for you. Here are some advantages of investing in Equity Funds:
 Your investment is managed by experts
 It is cost-efficient
 Convenient
 It offers diversification
 You can opt for systematic investments (installments)
 It offers flexibility and liquidity