Understanding Basics of Equity Funds

What are Equity Funds ?

Equity Funds are a type of Mutual Funds which Invests in the Shares / Stocks of a company or Derivatives (like Futures and Options). Equity Mutual Funds are further classified based on the Market Capitalisation of Companies, Sector or a Theme the Fund Invests, etc….

Types of Equity Funds

Equity Funds are broadly classified based on Market Capitalisation, Based on Sector and Based on Investing Style. So the Fund is Named in such a way which denotes what kind of stocks they Invest.

Based on Market Capitalisation :

These Funds Invest based on the Market Capitalisation of a Stock. SEBI has Categorised the Stocks based on the market capitalisation which modifies the list every 6 months.

  • Multi Cap Funds – These Funds Invest Across Different MarketCapitalisation
  • Large Cap Funds – These Funds Invest 80% of the assets in Large Cap Stocks
  • Large and Mid Cap – Funds – These Funds Invest in both large and Mid cap Stocks
  • Small Cap Funds – These Funds Invest in Small Cap Stocks
  • Mid Cap Funds – These Funds Invest in Mid Cap Stocks

Based on Investing Style

These Funds Invest based on style of Investment which is given in a Fund Objective of a scheme. There are two types of Investing Active and Passive Style of Investing. In Active style the fund managers manages the fund very actively by deviating from the benchmark of the fund. Incase of a Passively managed fund the Fund Manager just follows the benchmark Index of the Fund

  • Dividend Yield Funds – These Funds Invest in Stocks yielding good Dividends.
  • Value Funds – These Funds Invest in Stocks which are valued less than the Current Markets.
  • Focused Funds – These funds Focus and Invest in not more than 30 Stocks.
  • Index Funds – These Invest Invest in Stocks which constitute the Index like Sensex and Nifty.

Based on Sector or Theme:

These Funds Invest based on the Sector like Banking, Pharma, Technology, FMCG, Power, etc…..  Generally Sectoral funds are considered risky because they Invest only in a Particular Sector. So if there is any bad time for the sector due to government policies and other factors related to the sector. Sector Funds Invest across different market capitalisation.

  • Pharma Fund
  • Infrastructure Fund
  • FMCG Fund
  • ELSS Fund
  • Manufacturing Fund
  • Banking and Financial Services Fund
  • IT or Technology Fund

Who Should Invest in Equity Funds ?

Equity Funds are mostly of High Risk Investments. Investors Looking to Invest on a Longer Term Horizons (more than 5 years) can Invest in Equity Funds. So the Higher the risk the reward of the Return on the Investment is also higher. Investors looking to Invest in Equity Mutual Funds as its managed professionally by fund managers.

Taxation on Equity Funds

Equity Funds are taxed under two categories Long Term Capital Gains and Short Term Capital Gains. Equity Funds Invested less than 12 Months and the gains arising are taxed under Short Term Capital Gains. Equity Funds Invested for more than 12 months and the gains arising are taxed under Long Term Capital Gains.

Selection of Equity Funds

Equity Funds are selected based on the Current Market Trends, Past Performance of a Equity Mutual Fund, Investment Horizon the Investor wants to Invest, Purpose of the Investments like Retirements, Child Education, etc…

You Invest, Check NAV, Latest Information on Equity Funds, Compare Returns of Different Equity Funds through our website www.fundsinn.com/mutual-funds/equity-mutual-funds

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