Right since its inception, Mutual Funds have evolved into a preferred investment tool for many investors. However, choosing the right Mutual Fund scheme can be a difficult task due to the wide array of options available. Investment requires a careful and well-thought-out approach to avoid potential losses. Hence, it is imperative to understand the basics of the different types of schemes available to you. Here, we will explore Equity Mutual Funds and talk about the different types of equity funds along with their benefits and a lot more.
As the name suggests, Equity Funds invest in the shares of different companies. The fund manager tries to offer great returns by spreading his investment across companies from different sectors or with varying market capitalizations. Typically, these funds are known to generate better returns than term deposits or debt-based funds. There is an amount of risk associated with these funds since their performance depends on various market conditions.
An equity mutual fund will typically carry the below-mentioned characteristics:
There are various ways of categorizing equity funds. Here is a look at the different categorizations:
Some schemes might decide to invest in companies with specific market capitalizations only. Here are the common types:
A Mutual Fund scheme is classified as an Equity Mutual Fund if it invests more than 60% of its total assets in the equity shares of different companies. The balance amount can be invested in money market instruments or debt securities as per the investment objective of the scheme.
Further, the fund manager can choose to invest in a growth-oriented or value-oriented manner and select companies according to his assessment of the investment generating maximum returns.
Like any other investment decision, you must assess your financial goals, risk tolerance, and investment horizon carefully before signing the dotted line. For understanding, we have divided the investors into two broad categories – the new entrants and seasoned investors.
Many new investors are wary of investing in the capital market since they need more capital to invest, or need more time to constantly monitor their investments (a must for share investments), or need more expertise to choose the right shares. Hence, they turn to equity mutual funds. However, there are many types of equity funds available and selecting the right one can still be a challenge.Hence, it is better to select funds after considering your investment horizon, risk tolerance and market conditions while investing in these funds.
As a seasoned investor, you might already have an idea about how these funds perform. However, make sure to use your expertise well before investing to avoid risks. Your understanding of the market can help you choose the right scheme and earn higher returns as compared to other funds.
If you are sure about getting started and ready to invest in equity mutual funds, you can also invest in them through Groww by simply following the steps below:
Step 1: Download the Groww app from Play Store/App Store.
Step 2: Open an account and complete the KYC process.
Step 3: Click on the Mutual Funds tab, browse and choose the fund you want to invest in.
Step 4: Invest in the selected fund either in a lump sum or through an SIP.
Equity funds, unlike other low-risk funds, give you a greater return percentage. It comes with a high potential for your wealth creation journey and to diversify your portfolio.
These mutual funds can also help you in several other ways, such as being an investment for hedging against inflation, beating economic growth, outperforming fixed-return investment plans, and much more.
Tax on equity mutual funds is levied here as follows-
Capital Gains Tax
Dividend Distribution Tax (DDT)
Q1. What is an equity mutual fund?
An equity fund is a mutual fund scheme that invests more than 60% of the scheme’s assets in equity stocks. Although a minimal amount is invested in debt and other funds, it is highly concentrated on equities, therefore the name equity mutual funds.
Q2. Are equity mutual funds risky?
Equity funds are one of the most risky funds in the mutual fund environment. They come with a high risk-return ratio.
Q3. Who are equity mutual funds most suitable for?
These funds can be suitable for:
Investors with a high-risk appetite
Investors who are looking forward to diversification
Investors who want to stay invested in the fund for the long term.
Q4. Can I invest in equity mutual funds with a low-risk appetite?
These funds majorly invest in equities, which means they carry a high amount of risk. Only invest in these funds when you have the risk appetite to do so.
Q5. What is the investment horizon of an equity mutual fund?
Mutual funds are known to perform well in the long term. Therefore, to see positive outcomes, you need to stay invested in these funds for a period of 3 to 7 years.
Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
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