There has been a massive rise in people dabbling in an equity fund and yielding handsome returns. There are a plethora of reasons why investing in mutual funds will be the right choice. Though you will have to know about technicalities while investing, once you grasp the crux of the equity fund scheme, there’s no going back.
So, before you select an equity fund after someone suggested you do so, stop and wonder whether you have all the required information or not! Knowing the basics is important, especially when making a financial investment. So, let’s know every detail about the equity fund to make a better choice.
- 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
What is An Equity Fund?
A category of mutual funds, an Equity fund, is an investment 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 other 40 is invested in debts or other instruments for security. Since the equity mutual funds have the budding potential for long-term growth, bringing profitable returns to the investor, this is a great investment scheme.
Though there is a risk factor as the shares and stock market fluctuates, you will have to do proper research and understand company shares’ market condition and performance before investing.
How Do Equity Fund Functions?
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 be either active or passive, as we mentioned. 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.
Did You Know?
One day a renowned Indian news channel received a call from Ravi, who shared that his grandfather brought some shares of MRF worth Rs. 20,000 in 1990. His grandfather gifted these shares to him, and now he is willing to sell them. After going through the details, the anchor figured out that the current value of those shares is now more than 130 Crores. Hit the jackpot, didn’t he?
Different Types of Equity Funds
There aren’t exactly equity fund types but are differentiated based on various categories. Here’s a detailed version of various equity fund categories-
There are three categories under market capitalization- large, small and medium. Large-cap equity means investing more than 80% of your principal fund amount in a top 100 company. These are more stable in comparison to small-cap and mid-cap. Mid-cap equity means that you invest approximately 65% in companies ranking 101 to 250th position in the market. These offer better returns but are extremely volatile and may crash at times, so you need to play smart.
Around 95% of Indian companies fall under this category when it comes to small-cap equity mutual funds. They offer the highest return, and you will be investing around 65% of your assets here.
One more category- multi-cap equity, where you invest approximately 65%, a principal amount in large-cap, small-cap and medium-cap companies. Though in this scheme, you will have to rebalance the portfolio as per the economic condition of the market to cut down the losses.
Index funds imitate the market index such as Nifty, Sensex and such. Index 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.
Equity-linked savings scheme
Also known as ELSS, this equity mutual fund will offer you tax-saving benefits of up to 1.5 Lakhs. Under ELSS, the assets are predominantly invested in equity schemes. The tax saving is offered under the Income Tax Act, 1961 Section 80C.
With the lock-in period of 3 years, you won’t be able to close the fund before maturity. You can benefit highly from the equity-linked saving schemes if done right, especially if the company performs well in the market.
Thematic and sector funds
Under this category, the assets are invested in a specific theme or sector such as pharma, automobile, FMCG, etc. Whereas when we talk about thematic, 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-
- Pocket-friendly 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.
- Manager 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.
- Maximize tax benefits- If you invest in an equity-linked savings scheme, you can avail of tax benefits of up to Rs. 1.5 Lakhs. Though you will not be able to dip your hands in this investment before the lock-in period of 3 years is over.
- Diversify your portfolio- 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.
- Gain the best financial returns- You can build a corpus amount smoothly if you invest in the right stocks and shares. You can easily beat inflation with the returns you will receive.
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.
Top Equity Mutual Funds to Invest In
Before selecting the individual equity mutual funds to invest in, check its performance in the market. Suppose you depend upon the fund manager to manage your portfolio and make decisions on your behalf. In that case, you should check the manager’s track record to know whether he has made successful decisions.
Time is also important when selecting an equity fund as well. Here are some of the top equity mutual funds to invest in as per news sources–
- Canara Robeco Bluechip Equity Fund Direct Growth
|Time Period||Canara Robeco Bluechip Equity Fund Direct Growth|
|CAGR in the beginning||15.28%|
2. Axis Growth Opportunities Fund Regular Growth
|Time period||Annual percentage|
|Since 22 Oct 2018||22.04|
3. SBI Magnum Midcap Fund Direct Growth
|Time period||CAGR performance percentage|
|Since 29 March 2005||16.59|
4. Kotak Small Cap Fund Regular Growth
|Time Period||CAGR performance percentage|
|Last 1 year||40.95|
|Last 3 year||32.77|
|Last 5 year||18.70|
Word to Remember
NIFTY is a stock index introduced by the Nation Stock Exchange of India in 1992. The trading started in 1994.
On An Ending Note
Equity mutual funds are the best financial instrument to invest in the current market. However, it would be best if you were extra cautious and smart when investing your money as the stocks and shares keep fluctuating.
There are various web series based on trading and funds, and sometimes they may teach you a thing or two. What are you waiting for? Make your portfolio, hunt down the best equity fund that meets your requirements and earn a ton of money!
Frequently Asked Questions
An equity fund is the safest option to invest in when building corpus money for different purposes such as saving for your child’s education, investing money, etc. If you can manage risk while investing your money, an equity fund is suitable.
Both mutual funds and equity fund is a long-term plans. Investing in an equity fund is a bit riskier than a mutual fund. But when it comes to higher returns, if played right, the equity fund will bring you enormous returns in a short span. This is one of the crucial reasons why investors prefer equity funds to take their chance on.
The return you can get on direct equity can bring you the highest return compared to other schemes. You cannot leave room for mistakes; it is necessary to determine the price of stocks you are investing in and the time. One wrong move will make you face major losses in direct equity.
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% of your salary. If you get a better turnaround, you may invest more.