Know Different Types of Equity Funds to Invest Your Money In

People love making money, and various schemes are available in the market to double your money overnight. People have started investing in these schemes full time, as absurd as this may sound. However, this is not as easy as it sounds.

There are tricks, and timing is the most important factor. Also, don’t forget that having money is also important for investment. You are right, and we are talking about different types of equity funds that are gradually becoming people’s favourites now.

If you are just a beginner thinking about investing in an equity fund by downloading an app or signing up for any types of equity fund scheme after watching hundreds of YouTube videos, give yourself a break.

Here we have gathered every detail you should know while dropping your money in this pit. From understanding equity funds to types of equity funds, learn everything right here.

Key Takeaways

• People hire fund managers to know where to invest their money.
• Many people prefer to liquidate their stocks.
• Types of equity funds are categorized on the basis of investment
• There are various asset management companies that take up clients and help them invest in different types of equity funds.

Understanding Equity Funds

If you have been watching Shark Tank, you must be aware investors are acquiring equities in companies that will bring them profit, meaning more capital returns and more profit. In the same way, an equity fund means investing in the stocks or shares of different companies.

The equity funds provide higher returns than any other scheme in the market. However, considering the returns depend upon the market conditions, you will have to study the market thoroughly and invest the money.

You can invest on your own if you know this market, but considering you are a beginner, you should hire a fund manager who will do the hard work on your behalf and reap the benefits.

There are different types of equity funds in the market based on the categories. We have explained each type of equity mutual fund for you so that you don’t enter this money mining field without having an upper hand.

Did You Know?

The Bombay Stock Exchange is Asia’s oldest stock exchange, with over 5000 companies. It is also the world’s biggest stock exchange around the globe, with a huge number of companies listed.

Advantages of Investing in different types of Equity Funds

The advantages and returns of investing in equity funds are at the apex compared to other investment schemes. Here are the advantages of investing in equity funds to better understand whether equity funds are the right investment plan for you.

• Excellent tax benefits

Section 80C of Income Tax Act 1961, ELSS (Equity Linked Savings Scheme) gives investors tax benefits up to Rs. 46,800 on the investment of Rs. 1.5 Lakh. So if you’re investing in an equity fund, you will receive short or long term tax benefits for every stock you will sell or purchase. However, it will also depend upon the holding period. H0wever, tax benefits are set as per LTCG or STCG norms when we talk about other equity funds.

• Expert help on the go

Considering you are a beginner with zero market knowledge, you can hire an asset management company. These companies will conduct market research and assess risk and trade. Unless you have intensive knowledge about trading, it is not advised to invest independently.

These companies have a broader market outlook than you and rich experience in investment. Also, the asset management company will look after the geopolitical market, company performance, and other factors that affect the equity at the micro-level.

• Transparency

Securities and Exchange Board of India (SEBI) regulating body for all the mutual funds, maintaining transparency and security. Funds are advised to publish their net asset value (NAV) and expense ratio. This helps fund managers and research houses keep track of profitable equity funds and advise investors on which equity mutual funds are performing well.

• Maximum returns

Now, the whole point of investing in equity is to get maximum returns. Equity funds mean investing in the stocks and shares of any large-cap, mid-cap or small-cap company. Now the returns depend on the performance of the company in the market.

You are investing in the proportionate ownership of that particular company’s business with an equity fund. If the company you have invested in is performing well in the market, you will get higher returns and vice versa.

• Liquidating your equity fund

You can redeem several units of equity funds when the net asset value is out, allowing you to liquidate your assets. This redeemed amount will be credited to your linked bank account.

• Zero strain on your pocket

If you are afraid of investing a big amount in fear of the market crashing down or losing the profit, you can also invest in an equity fund’s systematic investment plan (SIP) with just as little as Rs. 500 per month. This will also help you build a corpus, and your fund will not be affected by the market volatility.

Types of Equity Funds Explained

This section might be a little complex for you to understand. Equity funds are not divided into different types but categorized as per SEBI. This categorization is easier to understand if you show a little patience. There are different categories; take a closer look at each of them to understand the types of equity funds-

• Sector or thematic funds

In this type of equity mutual fund, you will invest approximately 80% of your asset in a particular sector or theme. By sector, we mean it can be pharmaceutical, information technology, and such, whereas, in theme, there are sports, agriculture, chemicals, automobile, etc.

These are open-ended equity schemes and are riskier, considering they are focused on a particular sector.

• Large-cap equity fund

In a large-cap equity fund, a type of equity fund, approximately 80% of the assets are invested in the top 100 companies or the large-cap shares. This also depends on the market capitalization. They are bound to bring profit and are highly stable, considering they are in the top 100.

• Mid-cap equity fund

In a mid-cap equity fund, at least 65% of the asset is invested in shares of companies ranging from 101 to 250. These rankings are based on the company’s market capitalization. Though they offer higher returns than the large-cap equity funds, they are also more volatile, meaning if you make a wrong decision, you will face loss.

• Small-Cap Equity fund

In this category, approximately 65% of asset is invested in the equity share of a company ranking below 251, including around 95% of companies in the Indian market. The small-cap equity fund brings the highest returns but is extremely volatile.

• Multi cap fund

Around 65% of assets will be invested in large, small and mid-cap companies. The portfolio will have to be rebalanced to keep up with the market’s financial condition to meet the investment’s financial objective.

• Large and mid-cap equity funds

35% of assets will be invested in the large-cap companies, and the other 35 will be invested in mid-cap companies. You will get better turns, and there will be less volatility considering large caps are extremely capital.

• Equity-linked saving scheme

Also known as ELSS, a lock-in period of 3 years is not the only highlight of this equity fund. In this equity fund, you will have to invest around 80% of interest in the equity. The rest 20% will be invested in the equity-related market instruments. There’s also tax exemption, which means you will get tax benefits of up to Rs. 1.5 Lakh.

• Focused Equity Fund

Here you will be investing around 65% of the asset inequity and other instruments while keeping a minimum of 30 stocks in your portfolio.

• Contra Equity Fund

Now, this equity fund is interesting and, at times, brings huge returns. In contra equity fund, you will have to buy underperforming stocks. Considering they aren’t doing well in the market, you can easily buy them at a very low price. Now you have to wait and assume that these shares will recover and perform well, and you will gain heavy profits.

1. Active funds

In an active fund, a type of equity fund, the fund manager conducts the research and selects the equity fund to invest in. The chances of loss are relatively low, considering the fund manager is highly experienced in this field and will make conscious decisions on your behalf.

1. Passive fund

Unlike active funds, the fund manager will not be pivotal in this one for selecting stocks. Passive fund mirrors the market index, such as NIFTY.

These were different types of equity funds. You can invest in any one of these types of equity funds depending upon your investment objective.

Should You Invest in Equity Funds?

If you have a risk appetite and ability to handle the anxiety of investing your money in a scheme without knowing the result, then the equity fund is the right scheme for you.

There’s a lot to lose when investing in an equity fund, especially if you are investing without actually understanding the market; now, this will be a fool’s choice.

As a beginner, you should observe, hire a fund manager, invest in a large-cap fund, and invest in the top-performing shares to maximize your returns.

Just in case you are highly experienced and financially savvy and just here to brush up on your knowledge, we have a rock-solid piece of advice for you too. Consider investing in a multi-cap equity fund, as they will offer you the opportunity to balance your portfolio and get higher returns.

Word To Remember

Net Asset Value (NAV)

NAV is the price of a unit in a mutual fund. Investors purchase stocks based on their net asset value.

Before you go

Now you know about equity funds and their type in and out. Deciding about which equity to invest in should be easier for you now. However, you should still conduct thorough market research, consider your objectives and spearhead this equity domain with ease. May you get higher returns on every investment you make!

FAQs

Also Read: What is Equity Mutual Fund