Equity funds are basically mutual fund schemes that majorly invest in shares on companies. These companies could be large-cap, mid-cap, small-cap or micro-cap. When defining the different types of equity mutual funds, company-size is taken into consideration, i.e. Large Cap Equity Funds, Mid-Cap Equity Funds and Small-Cap Equity Funds.
Let’s learn about the best equity mutual funds, active or passive equity funds, diversified or sectoral equity funds and more.
Best Equity Mutual Funds in India, 2023
The following are the best large cap equity funds in India:
|Axis Bluechip Direct||Very High||Above Average||5-Star|
|Baroda PNB Paribas Large Cap Direct||Very High||Average||5-Star|
|Canara Robeco Bluechip Equity Direct||Very High||High||5-Star|
|Edelweiss Large Cap Direct||Very High||Above Average||4-Star|
|HDFC Index S&P BSE Sensex Direct||Very High||High||4-Star|
The below-mentioned are the best mid-cap equity funds in India:
|Axis Midcap Direct||Very High||Above Average||5-Star|
|Edelweiss Mid Cap Direct||Very High||High||4-Star|
|Invesco Ind. Midcap Direct||Very High||Average||4-Star|
|Kotak Emerging Equity Direct||Very High||Above Avergae||4-Star|
|Mirae Asset Midcap Direct||Very High||Above Average||4-Star|
Below-stated are the best small-cap equity funds in India:
|Axis Small Cap Direct||Very High||Above Average||5-Star|
|Bank of India Small Cap Direct||Very High||Above Average||4-Star|
|Canara Robeco Small Cap Direct||Very High||High||5-Star|
|Edelweiss Small Cap Direct||Very High||Above Average||4-Star|
|ICICI Pru Small Cap Direct||Very High||Above Average||4-Star|
What is An Equity Fund?
A category of mutual funds, an Equity fund, is a fund where investment are made in shares or stocks of any company. When you invest in equity, you will be putting your money in a company’s shares managed actively or passively.
An equity fund is also called a growth fund or stock fund, where 60% of an equity mutual fund is invested in a firm’s shares, and the remaining amount is invested in debts or other instruments for security.
Equity Mutual Funds: Risk-Return Factor
Since the equity mutual funds have high potential for long-term growth, bringing profitable returns to the investor, this is a great investment scheme.
The risk factor ranges from high to very high in equity funds, be it in a small-cap r large-cap company. It’s because the stock market fluctuates greatly and thus, one requires proper research & understanding of the market condition and performance before investing.
This is why, those who do not have good understanding of market should not pick stocks on their own but rather choose equity mutual funds where the fund manager will make decisions on your behalf and help you stay invested for longer period of time and inflate the growth.
Types of Equity Mutual Funds
Equity funds or equity mutual funds can be of various types, viz.:
- Large-cap equity funds
- Large & Mid Cap Equity Funds
- Mid-Cap Equity Funds
- Flexi Equity Funds
- Small Cap Equity Funds
- Equity ELSS Funds
- Equity Value Oriented Funds
Equity Fund: How does it work?
Suppose you put your money in a fund which invests 60% or more assets in different companies’ shares/ stocks in a balanced proportion. These can be mid-cap, large-cap or small-cap companies.
As per the investment objective, the rest amount will be invested in debt securities or other market instruments. The asset allocation (the amount you have invested) depends on the scheme’s investment objective, whether growth-oriented or value-oriented.
Now your equity can either be active or passive. Active equity mutual funds are where your manager will conduct thorough research about companies, understand the market performance, and then shortlist the best companies and shares/ stocks to invest in. This is best for taking advantage of short-term price fluctuations in the market and making a profit.
In passive equity mutual funds, your manager will create a portfolio that will track the market index and then decide where to invest. However, the buying and selling are limited within a portfolio, investors looking for long-term are suggested to invest in passive investing.
Index funds imitate the market index such as Nifty, Sensex and such. These funds fall in the passive category, resulting in the portfolio manager investing in similar stocks in that particular market sector. The index fund will only strive to match the performance of the other benchmark indexes, unlike the active equity fund.
Thematic and sector funds
Under the sector fund category, the assets are invested in a specific theme or sector such as pharma, automobile, FMCG, etc. Whereas, when we talk about thematic funds, it includes technology, sports, or any companies that follow one particular subject.
Benefits of Investing in Equity Funds
The benefits of investing in an equity fund are numerous, and the best one is that you will receive monetary benefits; now, why would anyone say no to this? Here are some of the benefits for you to know why you should invest in an equity fund asap-
- Affordable investment- You can invest as low as Rs. 500 in an equity fund by choosing the SIP method. SIP is one of the most popular methods to invest in an equity fund. You can maintain weekly, bi-weekly, quarterly or monthly investments based on how much you can afford.
- Managed by experts- As an investor, you can take expert help, also known as fund managers. These managers will make your portfolio, conduct thorough market research, evaluate the company’s performance, and then decide which stock/ shares to invest in to receive higher returns.
- Tax benefits- If you invest in an equity-linked savings scheme, you can avail of tax benefits of up to Rs. 1.5 Lakhs. That said, you will not be able to take out your money before the lock-in period of 3 years is over.
- Portfolio diversification- When you invest in an equity fund, you will get exposure to various other stocks. Suppose you have invested in 10 different stocks, and some of them underperform, you can still profit from the performance of the remaining stocks in the market.
How to Invest In an Equity Fund?
So, you have now finally decided to invest in an equity fund after understanding everything. We expect you to understand everything naturally if you have come this far. Though before you hand over the papers and invest your money, think about certain things, like what exactly is your financial goal? What is your risk appetite, and how much exactly do you want to invest?
Suppose you are a newbie with little capital to invest in and zero ideas of how the market functions; an equity mutual fund can be your best friend. But even then, finding the right equity mutual fund is a challenge, nonetheless.
New investors should choose to invest in large-cap equity mutual funds as they are more stable and less volatile than mid-cap and small-cap funds.
But, for an expert who is already aware of how this market works and which shares are doing the best, we will still suggest making a diversified portfolio, balancing the funds and taking minimal calculated risks.
Equity Funds: Key Takeaways
- Equity funds offer optimum returns in comparison to other schemes
- Types of equity fund depends on categories
- Equity fund have numerous advantages including building corpus money
- You can invest in an equity fund with as little as Rs. 500
- You can hire fund managers to help you make investment decisions
Equity Funds: FAQs
An equity fund has a high risk-return ratio which means that the risk is high but so is the profit. If you can manage the risk while investing your money, an equity fund will bring your fruitful results.
A private equity fund is a private investment where investors put their money directly into the company.
If you have planned on investing and you will pitch in money from your salary, then ideally, you should invest 20-30% of your total investment portion. If you get a better turnaround, you may invest more.