Equity mutual fund categories for your portfolio

Mutual Fund Investments

What are equity mutual funds?

An equity oriented fund invests 65% or more of its assets primarily in equity shares of companies in varied proportions. It can be a purely large-cap fund or a mixture of market capitalization. 
The expense ratio of equity funds is affected by the frequency of trading in the market and varies for different funds. Buying mutual funds directly from the fund website gives you access to direct plans which have a lower expense ratio which translates into higher returns for investors. If one invests wisely over a longer period of time, then one can achieve one’s financial goals very easily.

Who should invest in equity funds?

If you are a budding investor & wish to invest in stock markets for long term wealth creation, but do not have in depth knowledge or time to research about specific stocks to invest, then you should target equity funds.

 If you want to save taxes & also create long term wealth, there is a category called ELSS (Equity linked saving scheme) - which lets you save taxes as part of Section 80C.

Types of Equity Mutual Funds?

There are multiple types of mutual funds based on sector, market capitalization and index based. 

Sector based funds - Equity funds focusing on a particular sector come under this category. Sector based funds invest only in a single theme, for example Consumption, real-estate, pharma, construction, technology etc. If you foresee good growth in a particular sector in coming years, you can go with sector based funds. These tend to more riskier than the diversified funds & it is always advisable to not invest everything in a single sector. There may be some global or local events which could impact the growth of a sector in an economy.

Market cap based funds - Funds based on market cap are categorized into large, mid & small cap companies. Typically, large-cap companies are well-established companies, which makes large-cap funds stable and reliable investments & large cap funds invest in such kind of stocks. Mid-cap equity funds and small cap equity funds are funds that invest in mid-sized and smaller companies respectively. They invest in emerging businesses & hence tend to be more riskier, but can give unimaginable returns if invested in right fund & for long term duration.

Investment style based funds - Equity funds that follow a particular index are called index funds. These are passively-managed funds that invest in the same companies, in the exact same proportions, that make up the index the fund follows. For example, a Nifty index fund will have investments in all 50 Nifty companies in the same proportion in which the companies form part of the index.

One liner tip -

Your mutual fund portfolio should be well diversified & investments should be made for long term!! 

Mutual funds as an investment instrument has been gaining popularity over the years, thanks to the wide range of options available and the ease of KYC process. To know more about them, check out The Mutual Funds Sahi Hai campaign, launched by The Association of Mutual Funds in India (AMFI) at www.mutualfundssahihai.com

Share your thoughts in the comments section below!!

No comments:

Powered by Blogger.