Equity Funds - Meaning, Types, & Benefits

Equity Mutual Funds are investment schemes that primarily put money into the equity markets. They invest in company shares, offering investors a part-ownership in a range of businesses. These funds are popular for their potential to yield higher returns than fixed deposits or debt funds, but they come with associated market risks.

on Market Capitalisation

• Large-Cap Funds: Invest in the top 100 companies. Known for lower risk and stable returns

• Mid-Cap Funds: Target companies ranked 101 to 250. They balance risk and growth potential

• Small-Cap Funds: Focus on companies beyond the top 250. Higher risk but potentially higher returns

• Large and Mid-Cap Funds: Combine investments in both categories for stability and growth

• Multi-Cap Funds: Diversify across all market caps, offering a balanced exposure.

Based on Investment Style

• Active Funds: Actively managed, focusing on handpicked stocks

• Passive Funds: Track a market index involving less active management

• Tax Treatment-based

• Equity Linked Savings Scheme (ELSS): Offers Tax benefits under Section 80C of the Income Tax Act

• Non-Tax Saving Equity Funds: Standard equity funds without specific Tax advantages.

How Equity Mutual Funds work

Equity Mutual Funds invest a minimum of 65% of their assets in equity shares. The remaining can be allocated to debt or money market instruments. Fund Managers may adopt either growth-oriented or value-oriented investment strategies.

Investing in Equity Mutual Funds

• For New Investors

If you're new to equity funds, it's crucial to understand your risk tolerance, investment goals and market conditions. Selecting the right fund requires a careful assessment of these factors.

• For Seasoned Investors

Experienced investors should leverage their market knowledge to select funds that align with their risk profile and investment goals.

Why invest in Equity Mutual Funds?

• Higher Return Potential: Equity Funds generally offer better returns compared to low-risk funds

• Diversification: They provide an opportunity to diversify your investment portfolio

• Inflation Hedging: These funds can help in protecting your investment against inflation

• Long-term Growth: Suitable for long-term financial goals like retirement planning or children's education.

Taxation of Equity Funds

Dividends and Capital Gains: Subject to taxation as per the investor's Income Tax slab.

• Short-Term Capital Gains (STCG): Taxed at 15% if the holding period is less than 12 months

• Long-Term Capital Gains (LTCG): Taxed at 10% on gains exceeding Rs 1,00,000 if held for more than 12 months.

How to invest in Equity Mutual Funds

1. Research: Start by researching various funds to find the one that suits your investment goals

2. Risk Assessment: Understand your risk tolerance to select the appropriate fund type

3. Investment Horizon: Consider your investment duration. Equity funds generally perform better over the long term

4. Diversification: Ensure your portfolio is diversified across different fund types to mitigate risks

5. Regular Monitoring: Keep track of your investment's performance and market trends.

Equity Mutual Funds can be an excellent choice for investors seeking higher returns and willing to tolerate the associated risks. They offer diversification and the potential for significant growth, especially over the long term. It is important to research and choose funds that align with your financial goals and risk tolerance. Regular monitoring and reassessment of your investment are also key to maximising returns. Remember, investing in equity funds is a journey, not a one-time decision.