EQUITY FUND – A Class of Mutual Fund
WHAT IS AN EQUITY FUND?
Equity funds grail to generate high returns by investing in the companies‘ shares of different market capitalization. They generate higher returns than fixed deposits or debt funds. The performance of the company results in profit/loss decides how much an investor can make based on their shareholdings.
WHO SHOULD INVEST IN EQUITY FUNDS?
Here we go:
- For market savvy investors: If you are well-versed with the pulse rate of the market, but want to take the calculated risk, then you can think of investing in diversified equity funds. They end up investing in the share of companies across market capitalization. These give a combination of high-return and less-risk as compared to equity funds that invest only in small or mid-caps.
- For budding investors: If you are looking to have exposure to the stock market, then large-cap equity funds might be the right choice.
FEATURES OF EQUITY FUNDS
- 80C tax-exemption: Other than NPS, ELSS is the only tax-saving investment under 80C of the Income Tax Act. With high return potential and shortest lock-in-period, ELSS is good to go. You can either invest in a lumpsum or monthly as per affordability.
- Holding period: When you redeem units of equity funds, you end-up earning capital gains; these are taxable. The tax rate depends on how long you stay invested (holding period).
- Cost of Investment: The frequency of buying and selling impacts the ‘expense ratio’ of equity funds. Presently, SEBI has fixed the upper limit of expense ratio for equity funds. However, a low expense ratio translates into high returns for the investors.
- Diversification & Cost-efficiency: You can get exposure to a few stocks with a nominal amount by investing in equity funds.
BENEFITS OF INVESTING IN EQUITY FUNDS
- Low cost
- Expert money management
- Systematic investments
TYPES OF EQUITY FUNDS
- Based on Themes & Sector: Equity-based mutual funds that particularly focus their investments on a theme or sector comes under this category. Thematic funds follow the road of a theme, like international stocks, or emerging consumer companies. Sector funds end up investing in one selected industry, like Technology, Pharma or FMCG. Since thematic funds and sector funds focus on a theme or sector, they turn out to be riskier.
- Based on Market Capitalization:
Large-cap equity mutual funds: Usually, large-cap companies are established in a good way, thus, making them reliable investments and stability in large-cap funds.
Mid-cap equity mutual funds: They end up investing in medium-sized companies.
Mid-and-small-cap equity mutual funds: They are even funds that invest in both small-cap and mid-cap funds.
Small-cap- equity mutual funds: We know that small build companies are prone to volatility, therefore, small-cap mutual funds deliver fluctuating returns.
Multi-cap equity mutual funds: Funds that invest across the market capitalization, which is in small-cap, middle-cap, and large-cap are called multi-cap funds.
- Based on Investment Style: Equity mutual funds follow a particular index which is known as ‘index funds. These funds are passive that are invested in the same companies, in the same propositions. Also, index funds are low-cost funds because there is no such involvement of a fund manager.
To know more or willing to invest in mutual funds. Get in touch with the team of Gulaq.
*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.