Equity funds primarily invest in stocks and other equities, as suggested by the name. Despite their desire to profit from the stock market, many investors are dubious about it for a variety of reasons. Either they lack the knowledge necessary to select the best stocks or forecast market trends. Additionally, they might not have time to monitor the stock market and share prices regularly. Therefore, investors can take advantage of the possibility to invest in shares through mutual funds and gain the advantages of expert management. The best feature is that mutual funds invest in several firm stocks from different industries and capitalizations. As a result, you can share in the profits of numerous businesses.
Equity mutual funds are the ones that invest largely in shares and equity, despite the fact that different mutual funds have different ratios of asset allocation. A small portion of the fund corpus is invested in other asset classes. Shares have a significant initial investment, making them a high-risk/return investment.
What are equity mutual funds?
Equity mutual funds are those funds that place a sizable portion of their total assets in corporate equity instruments. These provide an alternative for people looking to earn returns equivalent to equity without taking on a lot of risks. It's an excellent choice for investors who want to park their money for longer periods of time.
A mutual fund is specifically referred to as an equity mutual fund if equities securities make up 60% or more of its assets. The remaining amount is invested in further debt securities, such as bonds and debentures, or in money market instruments, such as commercial paper. Due to its diversification, the fund is shielded from the significant volatility to which equities markets are subject. The fund manager examines the equities using a variety of methods and instruments before choosing the suitable stock for its investors.
Types of Equity funds
1. Classification based on market capitalization
Whether the company has a high, medium, small, or multi-cap market cap, securities of this type are picked based on their market cap.
One of the main things to take into account before investing in the stock market is this. Various types of investors can afford each of them. A risk-averse investor, for instance, would often choose large-cap firms. On the other hand, a high-risk investor seeking bigger returns would favour small-cap firms. The proportion of these securities is assigned based on the investor's preferences.
2. Classification based on investment strategies
In line with this, certain funds—known as sector funds—concentrate their assets in particular industries, such as pharmaceuticals, information technology, etc.
Themes like overseas stocks only serve as the foundation for some funds. Thematic funds are what they are called.
Contra equity funds are a different class of investment that consists of underperforming stocks. These are chosen because they are frequently less expensive and always offer room for long-term growth.
3. Classification based on the tax treatment
The way that taxes are treated is another important consideration when choosing stocks. Tax-savers like ELSS funds are included in one category of equity funds. Even though they don't produce as much profit, these are favoured by investors who wish to reduce their tax burden.
Conclusion
Equity funds are mutual funds that can survive market volatility over the long term due to their high risk-to-return ratio. As a result, they are suitable for long-term investments that can yield 10-12% returns. However, this may change depending on the state of the market. Therefore, investors should pick the appropriate fund according to their financial objectives, the time horizon for investing, and risk tolerance. Invest in equities funds if you can accept some risk to participate in the equity markets and build a corpus in 5–10 years.
Equity mutual fund vs debt Mutual fund | Types of Mutual Funds
When a bunch of investors with a common financial goal invest in a mutual fund, a pool of money is created.
In order to yield returns to our investors’ portfolio, the money is later managed by professional fund managers, who invest in bonds, stocks & various other money market instruments.The First Concept- Mutual funds are believed to be first traced back in the year 1774 by a dutch merchant Adriaan van Ketwich.
In the year 1772-73, his clients suffered a major loss, as an investment in the British East India Company didn’t turn out ideal.Bearing the heavy loss in mind, Ketwich came up with the concept of diversification of investments.
This eventually reduced the risk of loss to budding and existing investors.
In 1987 UTI saw the birth of public sector mutual funds.
Sectors like Life Insurance Corporation of India (LIC), SBI Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of Baroda Mutual Fund & many more surfaced.
