Equity Mutual Funds

Equity Funds generate significant returns by investing principally in stocks across all market capitalizations. However, the returns are directly proportional to the market volatility. Their counterparts, debt and hybrid funds give significantly low returns, as compared to equity funds.

How do Equity Funds work?

Equity Funds contribute at least 90% of their assets in various organizations' large-cap, mid-cap, or small-cap keeping in view investment objectives. The remaining sum may be invested into cash and cash-like instruments to take care of risk and return factors. The fund manager settles on purchasing or offering opportunities to exploit the changing business sector developments and tries to procure the most extreme returns.

Who should Invest in Equity Funds?

One’s choice to put resources into equity funds should be in a state of harmony with one’s risk profile, time-horizon and goals. Returns on equity not only depend on market behaviour but a longer duration of investment generally gives better returns.

Diversification is a critical part of managing one’s portfolio. To achieve that goal, there are different sub-categories of Equity Mutual Funds to choose from.

Market Capitalisation related funds

Market Capitalisation based Mutual funds are categorised as follows:

Sector Funds

Sector Mutual Funds are equity schemes that invest in a specific sector of the economy — Real Estate, Utilities, Natural Resources, Technology, Financial, Communication, Healthcare, Precious Metals, etc.

These funds allow investors to benefit from growth occurring in different sectors at different times.

Thematic Fund

Thematic Mutual Funds invest based on broader themes like infrastructure, where holdings may include cement, power, steel, and other related sectors.

Solution-Based Funds

These funds are structured for specific goals such as Retirement or Child Education. They usually have long lock-in periods.

Index Fund

Index Mutual Funds invest in indices such as Nifty 50 or Sensex. They are passively managed with a portfolio matching the index components. Tracking error risk exists.

ELSS – Equity Linked Savings Scheme

ELSS Funds offer tax exemption up to ₹45,000 under Section 80C (Old Tax Regime). They invest primarily in equity and equity-related instruments.

Global Based Mutual Funds

These funds invest in global equity indices, stocks, and debt instruments outside India. Many operate as fund-of-funds investing in overseas mutual funds.

Tax liability on Equity based Mutual Funds

To qualify for equity-based taxation, a mutual fund must invest at least 65% in Indian equity or equity-related instruments.