Financial Awareness Level
Know About Equity Mutual Funds and Their Types
Equity mutual funds are one of the most popular investment options for wealth creation. They offer the potential for high returns by investing in stocks of companies across different sectors and market capitalizations as per the scheme information document. Understanding equity mutual funds meaning, their structure, and different equity fund categories can help investors make informed financial decisions.
What Are Equity Mutual Funds?
Equity mutual funds are investment schemes that primarily invest in stocks or shares of publicly traded companies. These funds are also known as equity-oriented mutual funds, as they allocate a majority of their portfolio to equities.
Some of the common Types of Equity Funds
Equity mutual funds are classified based on their investment strategy, market capitalization, and sector focus. Here are the common types of equity funds:
1. Large-Cap Funds
- Invest in top 100 companies with large market capitalization.
- Offer relatively stable returns with lower risk compared to mid- and small-cap funds.
- Suitable for conservative equity investors.
2. Mid-Cap Funds
- Focus on medium-sized companies (101-250th ranked firms by market cap).
- Higher growth potential but with increased volatility.
- Ideal for investors with a moderate risk appetite.
3. Small-Cap Funds
- Invest in companies ranked beyond 250 by market capitalization.
- High-risk, high-reward investment.
- Suitable for aggressive investors seeking long-term capital appreciation.
4. Multi-Cap Funds
- Diversified investment across large, mid, and small-cap stocks.
- Balanced risk and growth potential.
- Good for investors seeking diversification within equity funds.
5. Sectoral & Thematic Funds
- Invest in specific sectors like IT, Pharma, Banking, etc.
- High risk as they depend on sectoral performance.
- Best suited for investors with strong knowledge of market trends.
6. ELSS (Equity Linked Savings Scheme)
- Offers tax benefits under Section 80C.
- Comes with a 3-year lock-in period.
- A great option for investors looking for both tax savings and wealth creation.
Equity Fund Categories Based on Investment Style
- Active Funds – Managed by professionals who select stocks to outperform the market.
- Passive Funds (Index Funds & ETFs) – Replicate a specific market index (e.g., Nifty 50) and have lower expense ratios.
Conclusion
Understanding what are equity mutual funds and the different types of equity funds helps investors choose the right fund based on their financial goals and risk appetite. Whether you prefer large-cap stability, small-cap growth, or tax-saving ELSS, equity mutual funds offer diverse opportunities to grow your wealth.
For further details click the link - Association of Mutual Funds in India SEBI Classification of Mutual Fund - HDFC Mutual Fund
Disclaimer:
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
FAQ Section
What are equity mutual funds?
Equity mutual funds are investment schemes that primarily invest in stocks of publicly traded companies. These funds focus on long-term wealth creation and are considered higher-risk investments compared to debt funds.
How do equity mutual funds work?
Equity mutual funds pool money from multiple investors and invest in a diversified portfolio of stocks based on market capitalization, sectors, or investment strategies.
What are the different types of equity mutual funds?
Equity mutual funds are categorized based on market capitalization and investment strategy, some of which are:
- Large-Cap Funds – Invest in top 100 companies, offering stability with lower risk.
- Mid-Cap Funds – Focus on medium-sized companies, providing higher growth with moderate risk.
- Small-Cap Funds – Invest in smaller companies, carrying higher risk but higher growth potential.
- Multi-Cap Funds – Diversify across large, mid, and small-cap stocks.
- Sectoral/Thematic Funds – Target specific industries like IT, Pharma, or Banking.
- ELSS (Equity Linked Savings Scheme) – Tax-saving funds with a 3-year lock-in period under Section 80C.
Which equity mutual fund is best for long-term investment?
For long-term wealth creation, consider:
- Large-Cap Funds for stability.
- Multi-Cap Funds for diversification.
- Mid- and Small-Cap Funds for high growth (with higher risk).
- ELSS Funds for tax benefits along with growth potential.
What is the difference between active and passive equity mutual funds?
- Active Funds – Managed by professionals who actively select stocks to outperform the market.
- Passive Funds (Index Funds & ETFs) – Replicate a specific index (e.g., Nifty 50) with lower expense ratios.
Are equity mutual funds risky?
Yes, equity mutual funds are market-linked and subject to volatility. However, large-cap funds carry lower risk than mid-cap or small-cap funds.
What are ELSS funds, and how do they help in tax savings?
ELSS (Equity Linked Savings Scheme) funds:
- Qualify for tax deductions under Section 80C (up to ₹1.5 lakh per year).
- Have a mandatory 3-year lock-in period.
- Potential to Offer higher return l compared to other tax-saving options.
How long should I stay invested in equity mutual funds?
For optimal returns, equity mutual funds should be held for at least 5-10 years to benefit from compounding and market growth.
Can I withdraw my investment from an equity mutual fund anytime?
Yes, but some funds like ELSS have a lock-in period. Other equity mutual funds can be redeemed at any time, though exit loads may apply if withdrawn early.
How can I choose the right equity mutual fund?
Consider the following before investing:
- Your risk tolerance (Low: Large-Cap, Medium: Mid-Cap, High: Small-Cap).
- Investment horizon (Short-Term: Sectoral/Thematic, Long-Term: Multi-Cap, ELSS).
- Fund performance, expense ratio, and fund manager expertise.
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Disclaimer
An Investor Education And Awareness Initiative Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. if they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
