What are Equity Fund : Types, Benefits, Returns & More

An equity fund is a type of mutual fund that is primarily focused on investing in stocks. Clients or individuals invest their money in the forms of SIP (Systematic Investment Plans) or as lumpsum amounts. Once you invest your money here, it goes forward and invests your funds into channels that are deemed the most profitable.

Once these investments have been completed, the total profits or losses that you finally accumulate are considered a part of your NAV (net asset value). Well, this is quite a short explanation, as there are a lot of technicalities involved here. However, in overall terms, this is what it mostly consists of.

Now, if you are indeed looking at a long-term investor, then you definitely need to know more. That is why, here is a blog for you, to help you learn and understand better.

What is an equity fund or what is equity mutual funds?

Let us first begin with the basic definition. An equity fund, or equity mutual funds, as they are also known, is a form of a mutual fund. They are usually used to invest in the stock options of companies that are listed on the stock market, in order to generate better returns for the clients. The money that they invest comes from the pool that is collected by a group of individuals who share a similar investment risk or rate of return.

Now, you should also know that equity funds do attract a higher share of risk when you compare it to other forms of mutual funds. In addition to that, there is no fixed formula here. You should not go into investing in the world of equity mutual funds if you think that an ideal of ‘one size fits all will work here. There is a wide variety of equity funds available for the investors. Each of these have their own risk factors, and investment objectives. Only when your objectives align with the overall risk profile, should you go ahead and invest in the particular equity mutual fund.

Ideally, the top equity mutual funds could also end up being a group of long-term equity funds. Therefore, you need to carefully analyse your options.

How do equity funds work?

In case of equity funds, a large share of the pooled amount is invested into the equity share of multiple companies on the stock market. However, the assets are allocated based on the company’s performance in the stock market, the type of equity fund and the overall objective of the equity fund. The fund manager decides where to invest, based on a number of factors. They could go for the stocks of all kinds of companies: small, mid or even large cap.

While most of the money is pooled into equity, the rest of it is sent into other financial instruments. You might have heard of the term: never put all your eggs in one basket. Well, that proverb applies here quite well.

What are the types of equity funds?

Here are the types of equity mutual funds that you should have a look at:

1. Small cap equity funds: Companies that have a full market capitalisation rank above 250, minimum exposure is 65% of total assets.
2. Mid cap equity funds: Companies that have a full market capitalisation rank between 101 and 250, minimum exposure is 65% of total assets.
3. Large cap equity funds: Companies that have a full market capitalisation rank below 100, minimum exposure is 80% of total assets.
4. Large and mid-cap funds: Allocation is equally divided between the large and mid-cap funds.
5. Multi-cap funds: Allocation is divided between large, mid and small-cap funds, decided by the fund managers.

What are the features of an equity mutual fund?

1. It offers a lower expense ratio which means better returns for the investors.
2. You are able to get an ELSS tax exemption under Section 80C
3. You are able to get your hands on a large number of well-to-do stocks, by investing a small amount of money.

Why should you invest in equity mutual funds?

Here’s why:

1. Your money is managed by seasoned experts in the industry
2. It is quite a cost-efficient and convenient as well
3. It allows you to diversify your investments
4. You could also opt for systematic, or instalments-based investments
5. It gives you a high degree of flexibility with your funds

Also, do keep in mind that the return you get on your equity depends on you. Your financial goals, investment patterns and everything else finally affects the rate of return. Ideally, if you invest in equity for a year, you could be looking at a 10% return, and a 5-year investment could give you a 15-20% rate of return.

How should you invest in an equity mutual fund?

To invest in an equity mutual fund, we suggest you download the Airtel Thanks app. There, you will find a wide variety of investment schemes, that will help you make the correct choice. In addition, you can also use the app to perform mobile recharges for your friends, family members and others.

Also, Airtel Thanks can be used as a cashless app to make online payments, pay utility bills, and do a lot more.

FAQs

Which type of equity fund is best?

The best equity fund is according to your financial goals and investment needs.

Is an equity fund a good investment?

An equity fund is one of the best investment mechanisms that you could choose for yourself.

Are equity funds high risk?

Yes, equity funds are usually considered high-risk financial schemes. The actual risk factor depends from one equity fund to another.