Mutual Funds are of many types. They could be an equity fund, a debt fund, a hybrid fund or even specialized tax saving mutual funds. There is a type of mutual fund to suit every individual investor’s needs. In this blog, we will examine the equity mutual fund and its types.
What is equity mutual funds?
An equity fund is a mutual fund that predominantly invests in equity or in other words, stocks of companies. An equity fund could be actively or passively managed. Equity funds are also known as growth funds.
An equity fund is further categorized as per the market capitalization, investment style, sectors or themes that the stocks belong to, or the geography that the stocks belong to.
Equity fund is an ideal investment vehicle as it can be linked to your mid to long term financial goals and may even help you save taxes with the tax saving mutual funds category.
Let us look at the various types of equity funds available in the market.
Active and Passive management-based equity fund: Equity funds where the fund is managed actively by a fund manager is an active fund. In this, the fund manager takes an active decision to invest in stocks after researching the market. In a passive fund, the scheme mirrors a market index or benchmark, and thus does not require any active intervention by a fund manager.
Market capitalization: Based on the market capitalization of stocks that the fund invests in, an equity fund could be Large Cap, Mid Cap or Small Cap. Companies featuring in the top 100 in the list of companies on the stock exchange in India are called Large Cap companies. The next 150 companies in the list are called the mid Cap companies and everything below that in the market are the small cap companies. Based on their risk appetite, investors can invest into any of the market cap stocks. As a general rule, small cap investments are more volatile than large cap stocks. A financial investor will be able to advise you on the best investment options as per your risk appetite and investment horizon.
Sectoral and thematic funds: These kinds of funds invest in a specific sector like Infrastructure, Power or IT. Or they may invest in a particular theme like consumption or manufacturing
Tax Saving mutual funds: This is a specialized category of equity fund schemes that helps investors save taxes under the old regime in Section 80C of the Income Tax Act 1961. Under this provision, investment into ELSS or the tax saving mutual funds enjoy a deduction of Rs 1.50 lakh in a year from the taxable income of individual investors. In effect, this translates to a tax saving of about 46,800/- if you are in the highest tax bracket. With a lock in period of 3 years these tax saving mutual funds offer long term equity growth.
Contact your mutual fund distributor or financial advisor to understand how investment into any equity fund can help you achieve your mid to long term financial goals.
