WHAT ARE EQUITY MUTUAL FUNDS?

An Equity Fund is an open or close fund that invest primarily in stocks, allowing investors to but into the fund and thus buy a basket of stocks more easily than they could purchase the individual securities.

The fund manager tries to offer great returns by spreading his investment across companies from different sectors or with varying market capitalizations. Typically, equity 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.

FEATURES OF EQUITY MUTUAL FUND

Low Expense Ratio

In Equity Fund, regular buying and selling of shares can lead to an increase in the expense ratio of the scheme. The Securities and Exchanges Board of India (SEBI) has created an upper limit for the expense ratio of equity funds at 2.5%.This means more returns for investors.

Tax Exemption under Section 80C

The Equity Linked Savings Scheme or ELSS offers tax exemption under Section 80C of the Income Tax Act with exposure to equity. It has a small lock-in period of 3 years and offers great potential for earning good returns. You can also invest in an ELSS in installments.

Portfolio Diversification

Equity Funds allow you to gain exposure to several good equity shares by investing a small amount. Hence, your equity portfolio is diversified and offers a better opportunity of earning good returns.

MUTUAL FUNDS AS PER SEBI CLASSIFICATION

Market Capitalization-based Categorization
Investment Strategy-based Categorization

Large Cap Funds – invest at least 80% in large caps

Multi Cap Funds– Invest at least 65% in equities & no market-cap wise restriction

Mid Cap Funds– Invest at least 65% in mid caps

Small Cap Funds– Invest at least 65% in small caps

ELSS Tax Saver Funds – Invest in Equity and offer tax exemption under 80C 

Sectoral Funds – Invest at least 80% in chosen sector stocks

Theme and Sectoral funds – Equity Fund might decide to follow a specific investment theme like an international stock theme or emerging market theme, etc. Also, some schemes might invest in a particular sector of the market like BFSI, IT, Pharmaceutical, etc. Here, it is important to note that sector or theme-based funds carry a higher risk since they focus on a specific sector or theme.

Focused Equity Fund – This fund invests in a maximum of 30 stocks of companies having market capitalization as specified at the time of the launch of the scheme.

 

Please feel free to contact us regarding any queries related to equity mutual funds, we at SMFS will help you in your financial journey towards a secure future.

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