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Equity Mutual Funds: The Complete Guide For Common Man

Posted: Nov 14, 2022
Investment in equity funds entails purchasing firm stock. An equity fund is a particular kind of mutual fund, to put it simply. Compared to investing in mutual funds, it is a little riskier. Due to their focus on stocks, equity funds are also known as stock funds. Therefore, equity funds may be your best option if you're seeking a long-term wealth creation investment strategy.
What are equity mutual funds?
Equity Mutual Fund refers to investment programs pooling money to buy various companies' equities. Equities make up at least 65% of a fund's total assets. Low-risk investments in debt and money market products are a good idea for the remaining capital.
The various equity mutual funds available in the Indian market
Equity mutual funds are complicated, but SEBI simplified things by categorizing them into ten distinct groups, each of which can be further broken down into subgroups based on various factors.
Market capitalization
Large Cap Fund
Equity Mutual funds focusing on large capitalization stocks tend to back established companies in their respective industries. As a result, these investments carry the least risk but also offer the lowest profits.
Mid Cap Fund
High-growth potential mid-sized firms are the focus of mid-cap Equity Mutual funds. Such funds have a higher level of risk than large-cap funds but may produce higher returns.
Small Cap Fund
Small-cap Equity Mutual funds are the way to go when investing because they focus on up-and-coming businesses. These funds have the highest risk level but have the most significant potential for reward.
Multi Cap Fund
Those that invest in "multi-cap" funds do so in companies of varying sizes. Risks can be mitigated by using such funds because of the diversification they provide.
Value Fund & Contra Fund
Value funds are equity funds that invest primarily in cheap stocks with long-term growth prospects. On the other hand, equity Mutual funds, known as "contra funds", invest in underperforming assets hoping they will outperform in the long run.
Sectoral/thematic
Sectoral funds target banking, aviation, IT, and others. They're unsafe since they're homogeneous. Thematic funding targets similar projects. Agricultural funds may invest in autos, chemicals, thermal power, etc. They spread their bets, providing investors with more options than sector funds.
Advantages of equity funds
A lot of money can be made:
Investing in stocks can yield high rewards, but it also comes with significant hazards. However, the risks of equities can be managed by maintaining investment for a lengthy period.
Managerial expertise:
In contrast to individual stock purchases, equity mutual funds are managed by a team of experts. Some professionals take your money and spread it around in various investments to provide you with the best possible return.
Diversification:
If you want to diversify your portfolio, you might look at several different types of Equity Mutual funds. There is no better way to reduce your exposure to financial risk than through diversification.
Minimum outlay:
Equity mutual funds can be purchased all at once or in instalments through a Systematic Investment Plan (SIP). For example, a systematic stock market investment plan can deposit Rs 500 weekly.
Convenience:
The best part is that you can begin purchasing shares in an equity mutual fund without leaving your house. Opening an online account and investing in Equity Mutual funds only takes a few clicks.
Tax Advantage:
ELSS is an equity mutual fund that can help you save money on taxes by lowering your taxable income. By strategically managing the duration of your investments, you can reduce your tax liability.
Conclusion
High volatility is one of the risks associated with investing in Equity Mutual funds that invests in stocks. However, after a while, market fluctuations tend to level off. Therefore, long-term risk-takers should consider investing in stock mutual funds.About the Author
Aarav Mehta - Interested towards finance and investment.
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