What is an equity fund?
Equity funds are a category of mutual funds that primarily invest in stocks of various companies listed on the stock exchange. These funds pool money from multiple investors with the objective of seeking a relatively better return potential by participating in the stock market. Additionally, equity funds offer an opportunity for individuals to indirectly invest in a diversified portfolio of stocks, even with a modest amount of capital.
Features of equity funds:
Professional management: Equity funds are managed by expert fund managers who make investment decisions on behalf of investors.
Diversification: Investing in a variety of stocks reduces risk since under performance in one stock/sector may be offset by others.
Liquidity: Investors can sell open-ended equity fund units on any business day at the prevailing NAV (Net Asset Value).
Benefits of equity funds:
Potential for growth: Equity funds offer the potential for capital appreciation over the long term.
Access to expertise: Investors benefit from the expertise of fund managers who analyse stocks and make informed investment choices.
Affordability: Even with a modest initial investment, individuals can access a diversified portfolio of stocks through equity funds.
Types of equity funds:
Equity funds come with several flavours, each with its unique characteristics and investment strategies. Here's a breakdown of the various types of equity funds:
Large-cap equity funds:
Covers top 100 companies in terms of market capitalization.
These funds predominantly invest in stocks of well-established and large companies.
They are known for stability and relatively lower risk due to the size and reputation of the companies in the portfolio.
Mid-cap equity funds:
Covers 101-250 companies in terms of market capitalization.
These funds focus on stocks of medium-sized companies.
They offer a balance between growth potential and risk, making them suitable for investors with moderate risk tolerance.
Small-cap equity funds:
Covers companies beyond 251 in terms of market capitalization.
Small-cap funds primarily invest in stocks of smaller, emerging companies.
They have the potential for high growth but are also associated with higher volatility.
Suited for investors with a higher risk appetite and a long-term investment horizon.
Sectoral/thematic equity funds:
These funds concentrate their investments in specific sectors or themes, such as technology, healthcare, or bank, among others.
They allow investors to potentially capitalise on the growth prospects of a particular industry.
Risk varies depending on the specific sector's performance and market situation.
Dividend yield equity funds:
These funds focus on stocks of companies with a history of paying dividends.
They aim to provide a regular income stream in the form of dividends in addition to potential capital appreciation.
Multi-cap equity funds:
Multi-cap funds have the flexibility to invest across large, mid, and small-cap stocks.
In multi cap large cap, mid cap and small cap are compulsorily allocated 25%.
Investing in equity funds offer a gateway to the world of stocks for investors looking to build wealth over time. However, it's crucial to remember they also carry market-related risks. Therefore, it's advisable to consult a financial advisor before making investment decisions to align your choices with your financial goals and risk tolerance.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.