Consumers’ investment choices have evolved ever since the introduction of mutual funds. The Securities & Exchange Board of India now regulates various types and categories of mutual funds.
Equity funds are one such popular subcategory of mutual funds. These funds are good options for capital growth investments since they help in wealth generation in the long term.
Equity funds come in a variety of forms depending on their qualities and potential for risk and profit. You can choose the best equity funds for your portfolio by knowing the risk-reward potential.
So, let’s delve into the various types of equity funds available in the market. But before that, go through a quick overview of what an equity fund is.
Equity Fund: What Is It?
No need to explore the internet for the perfect answer to ‘what is equity funds’ as this section takes care of that. Simply put, equity funds are types of mutual fund schemes that focus mainly on investments in the equity markets.
Equity mutual funds must allocate a minimum of 65% of their total assets to equities and equity-related products to comply with the existing SEBI Mutual Fund categorization.
Equity funds can produce great returns by investing your money in the stocks of business enterprises spread across the entire market capitalization.
Different Types of Equity Funds Available In The Market
Equity funds are typically categorized based on market capitalization and investment approach or style. Let’s check what both entail.
Types of Equity Funds Based on Market Capitalization
- Large Cap Funds: According to the mandate by SEBI, large-cap funds must invest at least 80% of their assets in large-cap equities. The remaining funds may be used to buy small-size, midcap, and other securities.
- Midcap Funds: To comply with SEBI regulations, midcap funds must allocate a minimum of 65% of their total assets to midcap company stocks. The remaining funds can be used to buy small-cap and large-cap stocks, among other things.
- Small Cap Funds: According to SEBI guidelines, small-cap funds are required to make a minimum investment of 65% of their total assets in the stocks of small-cap companies. The remaining funds can be put to use in midcap, large-cap, and other assets.
- Large & Midcap Funds: According to SEBI guidelines, large and mid-cap funds must make a minimum investment of 35% of their assets in both mid-cap and large-cap company stocks. The remaining 30% of the assets can be invested in other assets, SEBI-approved securities, or money market instruments.
- Multi-Cap Funds: Mutual fund plans that invest in equities from small, mid, and large-cap corporations make up multi-cap equity funds. These funds are often intended for investors who desire exposure to the entire market without being constrained to a specific industry.
Types of Equity Funds Based on Investing Style
Equity funds are also classified based on investing styles. Let’s take a quick look at these types of equity funds.
- Dividend Yield Funds: These plans invest primarily in equities with high dividend yields.
- Thematic or Sectoral Funds: By SEBI’s directive, these funds must allocate a minimum of 80% of their assets to a single industry or subject.
- Focused Funds: In accordance with SEBI’s regulations, focused funds may only invest in a total of 30 stocks.
- Value Funds: Value funds use a value-based investing approach. The funds make investments in businesses that are trading below their true value.
Equity Funds are well-known in the investment sector for producing returns within the range of 10 and 12%. (pre-tax).
This is an average value, and each fund’s performance will vary according to the state of the market. The correct scheme you choose will go a long way towards assisting you in ensuring a healthy return on your investment.
With the list of the various types of top-performing equity funds in this article, you’ll find no difficulty in determining which equity fund is the right for your investment portfolio.