What are Equity Mutual Funds?

Equity mutual funds are a type of investment that invests in stocks of different companies. These stocks may be large, mid or small-cap. The asset allocation may differ based on the mandate and investment strategy of the equity scheme.

The types of equity funds can be differentiated based on their risk level and asset allocation.

• Large Cap Fund:

  This equity scheme invests in stocks of companies with a market capitalisation of over ₹20,000 crores. Large-cap funds may be suitable for investors with a high-risk appetite, seeking long-term wealth creation.

• Mid Cap Fund:

  Mid-cap funds invest in stocks of mid-cap companies. Mid-cap companies have a market capitalisation between ₹5,000-20,000 crores. They may be vulnerable to market fluctuations and are classified as high-risk equity funds.

• Small Cap Fund:

  Small cap funds, a type of equity mutual fund scheme that invests a majority of their corpus in the stocks of small-cap companies. Companies that have a market capitalisation of below ₹5,000 crores are classified as small-cap companies. Small-cap funds may be volatile and are classified as a high-risk equity mutual fund.

• Equity-Linked Savings Scheme (ELSS):

  ELSS funds are also known as tax saver funds. By investing in ELSS schemes, investors can claim tax deduction on income upto ₹1,50,000 under section 80C of the Income Tax Act, 1961. However, equity-linked savings schemes have a three-year lock-in period. ELSS funds may be suitable for investors seeking long-term tax-saving investments that may aid wealth creation.

• Value Fund:

  Value funds look to invest in stocks of undervalued companies. Companies with a greater intrinsic value and lower market value are considered undervalued companies. Due to its investment strategy and risk level, value funds may be suitable for investors with a long-term investment horizon and risk tolerance.

• Large & Mid Cap Fund:

  This fund is mandated to invest 35% of its corpus in stocks of large and mid-cap companies each. Investors with a high-risk appetite, seeking long-term wealth creation may potentially benefit from this equity scheme.

• Flexi Cap Fund:

  This equity mutual fund scheme invests in stocks of companies across market capitalisations. This fund is mandated to invest 65% of its corpus in equity and equity-related assets. Investors with a high-risk appetite seeking portfolio diversification across different market capitalisations may potentially benefit from this fund.

• Focused Funds:

  Focused funds are a type of equity-oriented scheme that can invest in a limited number of stocks. This equity fund is mandated to invest in a maximum of thirty stocks from large, mid and small-cap companies. This may be suitable for investors with a high-risk appetite.

• Multi Cap Funds:

  This equity mutual fund invests in stocks of companies across market capitalisation. Multi-cap funds are mandated to allocate at least 25% of their corpus to small, mid and large-cap stocks each. This fund may be suitable for investors with a high-risk appetite and long-term investment horizon.

• Infrastructure Fund:

  Infrastructure funds are a type of equity scheme that invests in stocks of companies in the infrastructure sector. They are long-term and high-risk equity mutual fund.

• Transportation and Logistics Fund:

  This is a type of sectoral equity fund that invests in stocks of companies involved in the transportation and logistics industry. Investors seeking a long-term and high-risk investment in the transportation and logistics sector may potentially benefit from this fund.

• Financial Services Fund:

  This equity mutual fund invests in equity and equity-related instruments of companies in the finance sector. As a sectoral fund, this equity scheme is a high-risk investment, suitable for potential long-term wealth creation.

Taxation of equity funds in mutual funds depends on their holding period. Short Term Capital Gains Tax is levied on units held for less than one year at 15%. Long Term Capital Gains Tax is levied on units held for over a year at 10% for gains over 1 lakh.

Who Should Invest in Equity Schemes?

Equity funds in mutual funds are generally a high-risk investment option. They may be vulnerable to market fluctuations. Market risk is the risk of loss in value of securities due to fluctuations in the stock market. Global socio-economic factors may affect equity fund returns. Equity mutual funds may also be vulnerable to interest-rate risk, inflation risk, liquidity risk, concentration risk etc. Investors with a high-risk appetite may potentially benefit by investing in equity mutual funds.

Equity schemes are usually considered to be medium to long-term investments as they aim to potentially ride out volatility and create wealth in the long term. They may be suitable for investors looking to meet their long-term investment goals. Investors must carefully consider the risks, investment horizon and goals of any equity scheme before investing.

FAQs

• What is the meaning of equity mutual funds?

  Equity mutual funds invest a majority of their corpus in equities and equity-related securities. These funds may be invested in stocks of companies from different sectors and market caps.

 
• How to invest in equity mutual funds?

  You can invest in equity funds through our website. All you have to do is select the scheme you wish to invest in, select ‘Invest now’ on the scheme page. Post this you need to login and fill in the required details, select the payment method and submit the transaction.

 
• Which equity-oriented funds are the best?

  A suitable equity fund depends on the investor, their risk appetite and investment goals. Equity mutual fund schemes are generally considered high-risk and long-term investments. Investors must analyse their investment goals and read all scheme-related documents carefully before investing.

 
• Are equity mutual funds high-risk?

  Yes, equity mutual fund schemes are generally considered to be high-risk investments. They may be vulnerable to market volatility and fluctuations, market risk, inflation risk, liquidity risk, interest-rate risk, concentration risk etc.

 
• Do equity-oriented funds have a lock-in period?

  Equity-Linked Savings Schemes are a type of equity mutual fund that has a three-year lock-in period. Most other equity mutual funds do not have a lock-in period. Investors must read all scheme-related documents carefully before investing.

 
• Are equity mutual funds tax-free?

  No, all equity mutual fund schemes are not tax-free. ELSS funds may be a useful investment for tax-saving purposes. Investors can claim deductions up to ₹1,50,000 under section 80C of the Income Tax Act, 1961. STCG and LTCG apply to other equity funds. STCG tax is levied at 15% and LTCG tax is levied on gains over ₹1 lakh at 10%.

 
• Are equity mutual fund returns high?

  Equity mutual fund returns depend on market conditions which may be volatile. While equity mutual funds aim to potentially create wealth in the long term, the returns of any mutual fund schemes are not guaranteed.