What Are Equity Funds?
Imagine investing is like sailing on a big ocean, and equity funds are your trusty ships. These special ships help you steer through the ups and downs of the money world. By putting your money in these funds, it’s like owning a piece of many companies. You might see your money grow over time! But here’s the catch: not all these funds are the same. Some ships are bigger, some smaller. It’s important to pick the right one that suits your journey. So, while equity funds can be great companions on your financial adventure, choose wisely! In this story, we’ll set sail on a journey to explore the different types of equity funds, each with its unique characteristics and investment strategies.
Types Of Equity Funds
1. Diversify and Conquer: Diversified Or Flexi Cap Equity Funds & Multi Cap Equity Funds
Flexi-cap funds and Multi-cap funds are diversified equity funds. They are like the chameleons of the equity investment world. They invest across companies of all sizes and sectors, ensuring a well-rounded portfolio. This diversification helps reduce risks associated with the performance of any single company or sector. Whether it’s a large-cap blue-chip or a small-cap gem, such equity funds spread their nets wide, offering investors exposure to the entire market. Multi-cap funds are a little different from Flexi-cap funds. Multi-cap funds are required to invest a fixed percentage in large cap, mid cap and small cap companies, whereas flexi-cap funds are free to invest across companies.
2. Blue Chips and Beyond: Large Cap Equity Funds
Large-cap equity funds set their sights on the big players of the market – the blue-chip companies with a proven track record. These funds invest primarily in large-cap stocks, which are known for their stability and reliability. Investors flock to large-cap equity funds, seeking a balance between growth potential and lower volatility. These funds often weather market storms better than their smaller counterparts, making them a cornerstone for conservative investors.
2. Unleashing Potential: Small Cap and Mid Cap Equity Funds
For those seeking higher returns and willing to embrace a bit more risk, Small-cap and Mid-cap equity funds may be the vessels of choice. Small-cap funds invest in companies with a smaller market capitalisation, often considered more nimble and growth-oriented. Mid-cap funds, on the other hand, strike a balance between the stability of large caps and the growth potential of small caps. These funds can be compare to adventurous ships exploring uncharted waters, uncovering hidden gems that have the potential to become the market leaders of tomorrow.
3. Sailing the Sector Seas: Sectoral Equity Funds
Imagine equity funds as specialized ships, each dedicated to a specific sector of the market. Sectoral equity funds focus on industries like technology, healthcare, or finance. Investors with a keen interest in a particular sector can use these funds to fine-tune their portfolios, capitalizing on the growth potential of a specific industry. However, it’s worth noting that sectoral funds can be more volatile, as their performance is closely tied to the fortunes of a single industry.
4. Global Expedition: International Equity Funds
As the world becomes more interconnected, international equity funds offer investors the chance to set sail beyond their domestic shores. These funds invest in stocks listed on global exchanges, providing diversification across countries and currencies. While the appeal lies in the potential for higher returns and exposure to international market dynamics, investors should be get ready for the additional risks associated with currency fluctuations and geopolitical events. Further, long term gains from these funds are taxed at the tax rate applicable to you. Long term gains from other equity funds are taxed at 10%.
5. Track the market: Index Funds
This type of Mutual Fund invests in shares of companies or other assets that make up that particular index in the same percentage as they form part of that index. Eg BSE Sensex, Bank Nifty, Gold etc. Since no research is necessary by the fund manager to decide on the investment, the cost of managing index funds is low. So they have a low Total Expense Ratio (TER) that all mutual funds charge, improving the chances of a higher return.
Equity funds, with their diverse range of types, provide investors with a fleet of options to navigate the ever-changing seas of the financial markets. Whether you prefer the stability of large caps, the growth potential of small caps, or the excitement of sectoral exploration, there’s an equity fund for every investor. As you embark on your investment journey, remember to align your choices with your financial goals, risk tolerance, and time horizon. With a well-chosen mix of equity funds, you can set sail towards a brighter financial future. Bon voyage!
Apart from just equity mutual funds, you can build a financial/investment plan with Propel Money, where we’ll tell you exactly how to deploy your savings.