Equity, Equity Mutual

Funds, Index funds & ETFs

Group 4
22P218 Mehul Jain
22P249 Ayush Jain
22P261 Avinash Sharma
22P288 Pratyush Dash
22P314 Madhav Chadha
Table of Contents

I. Equity Investments
II. Mutual Funds
III. Index Funds
IV. Exchange Traded Funds
Equity Investment
• An equity investment is an investment in a company that gives the investor a share of ownership in that company.
• Equity investments can be made in publicly traded companies through the stock market, or in privately held companies through private
equity investments.
• Equity investments are linked to the performance of the company, If the company does well, the value of the stock will increase and the
investor will make a profit. If the company does poorly, the value of the stock will decrease and the investor will lose money.
• These investments are considered riskier than other type of investments such as bonds, mutual funds, etc. However, they also have the
potential to generate higher returns over the long term.

Advantages of Equity Investments Disadvantages of Equity Investments

• Potential for high returns: Equity investments have the potential to
generate higher returns over the long term than other types of
investments, such as bonds or cash. This is because equity investors
are sharing in the profits of the company.
• Liquidity: Equity investments in publicly traded companies are highly
liquid, meaning that they can be easily bought and sold on the stock
market.
• Ownership stake: Equity investors own a share of the company they
invest in, which gives them a say in how the company is run.
• Inflation protection: Equity investments beat inflation as the value
of stocks tends to rise with inflation.
• Volatility: Equity investments can be volatile in the short term,
meaning that their value can fluctuate significantly.
• Loss of principal: Equity investors have a subordinate claim on the
company's assets, and provide no safeguard from loss of principal
• Complexity: Investors need to understand the financial markets and
the companies they are investing
• Illiquidity: Equity investments in privately held companies can be
illiquid, meaning that they can be difficult to sell.
• Lack of transparency: Privately held companies are not required to
disclose as much financial information as publicly traded companies.

Return on equity shares depends upon performance of the respective industry as well as the company along with micro-economic factors
of the market
Equity Investment
Listed Equity Market INR 282 lakh crore
5,311 companies
• There are 23 stock exchanges in India. Two of them are National market cap.
Stock Exchanges i.e. National Stock Exchanges (NSE) and Bombay INR 275 lakh crore
Stock Exchange (BSE) and 21 regional stock exchanges 2,133 companies
market cap.
• In order to invest in equity shares, one has to open a Demat account
with a broker Stock Market Order Types
• Market Order – Order to buy or sell a stock at best available
price in the market at the time an order is placed
• Limit Order - A limit order is an order to buy or sell a stock at a
specific price or better.
• Stop Loss Order – Used to limit losses and is usually placed
below market price, If the stock price falls to the stop price, the
stop-loss order will become a market order and the stock will be
sold.
• Stop Limit Order – Combines the characteristics of limit order
and stop order. Placed below the current market price but also
specifies the minimum price at which the stock must be sold
Taxability • Day Order – A day order is an order to buy or sell a stock that
Dividend Income Exempt upto 10 lakhs p.a. excess taxable @10% must be executed on the same day it is placed else it is cancelled
STCG Taxed at flat rate of 15%
• Other types of orders are Good-'til-canceled (GTC) order, All-or-
none (AON) order, Fill-or-kill (FOK) order.
LTCG Exempt up to 1 lakh p.a.
Excess taxed at 10% without LTCG benefits
Intra Day Trading Taxed as per Slab Rates
Equity Mutual Funds
• Mutual fund is a collective pool of money contributed by several investors and Mutual Fund Model
managed by a professional Fund Manager.
• Equity mutual funds are defined as
• Mutual funds are ideal for investors who –
o lack the knowledge or skill / experience of investing in stock markets directly
o want to grow their wealth, but do not have the inclination or time to research
the stock market
o wish to invest only small amounts
• Mutual funds are regulated under SEBI (Mutual Funds) Regulations, 1996

Advantages of Equity Mutual Fund

• Professional Management – Managed by full-time, professional managers who
have the expertise, experience and resources to actively manage MFs
• Risk Diversification – Buying shares in a mutual fund is an easy way to diversify
your investments across many securities and asset categories
• Affordability & Convenience – the minimum initial investments for most mutual Key Matrix
funds makes them affordable
• Liquidity – You can easily redeem (liquidate) units of open ended MFs (T+2) • Assets Under Management
• Low Cost – Low expense ratio due to economies of scale • Net Assets Value
• Well-Regulated – Mutual Funds are regulated by SEBI • Total Expense Ratio
• Tax Benefits – Investment in ELSS up to ₹1.5 lakhs qualifies for tax benefit under • Entry/ Exit Load
Sec. 80C of the Income Tax Act, 1961 • Alpha
• Small Investments – Allow investment through systemactic investment plans
over any frequency such as weekly, monthly, quarterly, bi-annually, or annually
providing benefits of rupee cost averaging
Equity Mutual Funds
Against the backdrop of an expanding domestic economy, robust inflows and rising investor participation, industry AUM has
grown at a CAGR of ~20% between FY12-22
Equity Mutual Funds
Types of Actively Managed Equity Mutual Fund Key Players by AUM

Large Cap Fund At least 80% investment in large cap stocks

Large & Mid Cap Fund At least 35% investment in large cap stocks and 35% in mid cap stocks
Mid Cap Fund At least 65% investment in mid cap stocks
Small cap Fund At least 65% investment in small cap stocks
Multi Cap Fund* At least 65% investment in equity & equity related instruments
Dividend Yield Fund Predominantly invest in dividend yielding stocks, with at least 65% in stocks
A Commodity Fund is a mutual fund that invests in the trade of a particular
Commodity Fund commodity. This allows the investors an opportunity to earn returns from commodity
market

Focused Fund Focused on the number of stocks (maximum 30) with at least 65% in equity & equity Taxability of Equity Mutual Fund
related instruments
Dividend Taxed at Slab Rate
Sectoral/ Thematic Fund At least 80% investment in stocks of a particular sector/ theme Income
At least 80% in equity scheme which comes, with a lock-in period of three years, STCG Taxed at flat rate of 15%
ELSS offered by mutual funds in India. Offer tax benefits under Sec 80C
Exempt up to 1 lakh p.a.
LTCG Excess taxed at 10% without
Direct Plan vs Regular Offered directly by the asset management company (AMC) to investors, without the LTCG benefits
Plan involvement of any intermediaries such as distributors or brokers where as regular
plan is sold through intermediaries such as brokers, distributers and financial advisors
Conditions: 1. 65% of the total fund amount should
Growth plan typically reinvest their earnings back into the fund, which helps to be invested in equity
Growth plan vs Dividend compound the returns that investors earn over time where as Dividend plans may also 2. Period of LTCG – 12 months
plan distribute some of their capital gains to investors as dividends. 3. SIP investment are taxed on FIFO basis
4. Subject to cess and surcharge
Index Funds
• An index fund is a type of mutual fund or exchange-traded fund (ETF) designed to track the performance of a particular market index, such as
the Nifty 50 or the Sensex.
• Index funds are passively managed, which means that the fund manager does not try to beat the market by picking individual stocks. Instead,
the fund manager simply buys and sells securities in the index in order to track its performance.

Advantages of Index Mutual Fund over Actively Managed Funds

• Lower fees - Index funds typically have lower fees than actively managed
funds. This is because index funds do not require the fund manager to spend
time and resources researching individual stocks.
• Tax efficiency: Index funds do not trade securities as often as actively
managed funds which reduces the amount of capital gains taxes that actively
managed funds may have to pay on account of frequent trading of securities
• Performance: Index funds have historically outperformed actively managed
funds over the long term. This is because it is very difficult for active fund
How to select the best Index Fund
managers to consistently beat the market.
• Choose the right index: That is appropriate for your investment
Index funds have gained popularity over the past years, this is on goals and risk tolerance.
• Invest for the long term: Index funds can be volatile in the
account of lower fees and tend to outperform actively investment short term.
funds over long period • Fund Fees: through index funds have a lower fees, its is still
Taxability of Index funds is same as equity mutual funds important to choose funds with lower fees to maximize your
return
• Fund tracking error: A lower tracking error indicates that the
index fund is doing a good job of tracking its target index.
ETF: Inexpensive, index-investing option
An ETF, or exchange traded fund, is a marketable security that tracks an ETF Model
index, a commodity, bonds, or a basket of assets like an index fund.

When you buy shares/units of an ETF, you are buying shares/units of a

portfolio that tracks the yield and return of its native index. The main
difference between ETFs and other types of index funds is that ETFs don't
try to outperform their corresponding index, but simply replicate the
performance of the Index.

Advantages of ETFs
ETFs combine the range of a diversified portfolio with the simplicity of
trading a single stock. Investors can purchase ETF shares on margin,
short-sell shares, or hold for the long term.
Asset Allocation: Provide exposure to broad segments of the equity
markets. They cover a range of style and size spectrums, consistent with
investor’s financial needs, risk tolerance, and investment horizon How to select a good ETF ?
Arbitrage & covered option strategies: ETFs can be used to arbitrage Preferred Benchmark: There are mainly 4 types of ETFs available in India..
between the cash and futures market, as they are very easy to trade. ETFs High Trading Volume: Investors must take care to buy an ETF whose trading
can also be used for cover option strategies on the index. volume is high. Why? Because for traders, low trading volume will result in
Hedging Risks: Excellent hedging vehicle because they can be borrowed higher bid-ask spread, leading to more cost of investment
and sold short. The smaller denominations in which ETFs trade relative to Low Tracking Error: The difference between returns generated by ETF and
most derivative contracts provides a more accurate risk exposure match Nifty’s appreciation is called tracking error. Investor must pick the ETF with
Cash Equitisation: ETFs provide a "Parking Place" for cash that is minimum tracking error.
designated for equity investment. Because ETFs are liquid, investors can Low Expense Ratio: As ETF’s track an index, hence they are not actively
participate in the market while deciding where to invest the funds for the managed. This substantially brings down their expense ratio.
longer-term.
ETF: Inexpensive, index-investing option
Types of ETFs Growth of ETFs

Equity ETF ETFs that invest in equity shares and other equity-related instruments.
Debt ETF ETFs that invest in fixed-return securities like bonds and debentures.
Gold ETF ETFs that invest in fixed-return securities like bonds and debentures.
Currency ETF ETFs that invest in currency instruments.

Bond ETS ETFs designed to provide exposure to different types of bonds. Investing in bonds is a
good way to mitigate the ups and downs of investing and diversifying a portfolio.
Such funds are designed to return the opposite of what is offered by the underlying Break up of ETFs available in
Inverse ETFs market index. With these funds, share prices move in the opposite direction of the
inverse ETFs’ share India
These funds try to minimize price risks and enhance returns by investing in a basket of
Liquid ETFs short-term government securities, such as money and money market instruments
with short maturities, while simultaneously attempting to maintain liquidity.

Taxation on ETFs

Type of ETF Equity ETF Other ETF

Period of Holding 12 months 36 months Interest Income
IFOS at slab rates
10% in excess of INR Dividend income
1,00,000 under Section 20% with Up to FY 2019-20 – Exempt
Long Term Capital Gain 112A Indexation FY 2020-21 onwards –IFOS at slab
Short Term Capital Gain 15% under Sec 111A Slab Rates
Thank you

Disclaimer:
Mutual Funds investments are subject to
market risk.
Please read the offer document carefully
before investing