What are different types of equity funds in India?

Equity funds invest in the shares of listed companies, allowing investors to participate in the stock market without buying individual stocks directly.

Types of equity funds categorisations based on market cap:

The Securities and Exchange Board of India (SEBI) classifies equity funds into the following segments based on market capitalisation:

Large cap funds: These funds primarily invest in the top 100 companies by market capitalisation, known for their vast size, market dominance, wide public ownership, and robust financial health. Due to their stability, they are perceived as less risky and attract higher valuations. SEBI mandates large cap funds to allocate at least 80% of their assets to these companies, diversifying the remaining assets across various sectors and market caps.

Mid cap funds: Focused on companies ranking from 101st to the 250th by market capitalisation, these funds target relatively younger entities. Mid cap companies are considered relatively riskier and have modest valuations compared to large cap companies. However, mid cap stocks often showcase higher growth trajectories and the potential to evolve into large cap entities. SEBI mandates that midcap funds allocate at least 65% of their assets to mid-cap companies.

Small cap funds: Investing in companies ranked 251st and beyond by market capitalisation, small cap funds focus on entities that are viewed as high risk compared to large and mid cap companies. Despite the relatively higher risk profile, small cap funds present opportunities for considerable long-term growth potential. Small cap funds are required to invest a minimum of 65% of their assets in such companies, diversifying the remainder across different categories.

Large and mid cap funds: A mix of the first two categories, these mutual funds invest both in large and mid sized companies, balancing relative stability with growth potential. Minimum investment in equity and equity related instruments of large cap companies - 35% of total assets. Minimum investment in equity & equity related instruments of mid cap stocks - 35% of total assets

Flexi-cap funds:These flexible funds invest in companies of all sizes. The fund manager shuffles investments based on market conditions and prospects, offering the potential benefits of diversification to investors. Minimum investment in equity & equity related instruments - 65% of total assets

Type of equity fund categorisations based on investment styles:

Dividend yield funds: Among the different types of equity mutual funds, these target companies that offer consistent dividends. They are ideal for investors seeking both regular income and capital appreciation.

Value funds: These focus on stocks perceived to be undervalued compared to their true value. The aim is to invest in these stocks at a bargain, hoping their price will rise to match their intrinsic worth.

Sectoral or thematic funds: These funds invest in specific sectors (e.g. IT or banking) or themes (e.g. sustainable energy). Sectoral or thematic funds come with a relatively higher risk because their performance is closely tied to the success of a specific sector or theme.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.