What Is Equity Mutual Funds? Its Types Explained!

By Author: swarali chavan
Total Articles: 27

Two popular mutual funds in India are equity and debt funds. These funds have their sub-types, catering to every objective and financial requirement of the investors. You should invest in equity if you are willing to take high risk and looking for a horizon of five years. If you have a low-risk appetite, you can stick to debt funds.

One of the primary reasons people opt for equity funds is because they offer quick returns and fulfil the investor's short-term goals. An equity mutual fund predominantly invests in assets like shares/stocks. They are further divided into sector funds, ELSS funds, and so on.

Let us learn about each type in detail:

1) Sector funds: These funds invest almost 80 per cent of their assets in a sector/theme such as banking, IT, or pharma. Sector funds are risky as capital appreciation depends on the performance of the particular sector. The fund managers have to time the investment in such scenarios.

2) Multi-cap equity fund: It is an open-ended fund that invests 65 per cent of its assets in large-cap, mid-cap, and small-cap. Multi-cap funds can offer higher returns as they invest across markets. The fund manager here can also rebalance between large, mid, and small-cap stocks depending on the market trends.

3) Large-cap equity funds: Such funds invest at least 80 per cent of their assets in large-cap companies. They help maintain stability in the portfolio and are less volatile than mid or small-cap funds. However, they generate lower returns.

4) Mid-cap equity funds: At least 65 per cent of assets are invested in mid-cap stocks. They perform better than large-cap funds, offering a higher profit. So, high-risk investors can opt for such funds.

5) Small-cap equity funds: These funds invest 65 per cent of its assets in small-cap companies shares. Small-cap funds tend to provide higher returns. Almost 95 per cent of the companies in India falls under this fund.

6) ELSS: ELSS funds meaning is where 80 per cent of its total assets go towards equities and equity related instruments. Here the investors can earn tax deduction up to INR 1.5 lakh under section 80C of the Income Tax Act. They also come with a lock-in period of three years.

7) Value equity fund: Such a fund follows a value investment strategy. Value equity funds invest in three types of stocks namely ongoing underperforming stocks, shares with low Price to Earnings, or stocks belonging to emerging sectors that can perform highly in the future.

Which funds are you aiming to invest in? Sector funds or ELSS or mid-cap funds?