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As the name suggests, Equity Fund invests in shares of different companies. Fund managers or investors try to get high returns on their investments. This spreads across its investments in various companies. Generally, equity funds are known to give good returns. Equity type investments involve many risks as their performance is very much dependent on the market conditions. There are 12 types of equity fund categories as per SEBI norms. These 12 types of equity funds have been created to facilitate product differentiation. These 12 types of equity funds categories have benefited the investors a lot. There are various types of equity funds, segregated on the basis of essential parameters.
Types of Equity Funds
As time goes on, people are developing more. People are now much interested in investing. The broad categories are further divided into specific categories to help out the investors make an informed choice. Investing becomes easier when a person knows everything about the various types of funds.
Now they can know very well about the product they are investing in or in whichever new product they are going to invest in. Those who invest in types of equity funds say that this categorization has forced the house of funds to offer true-to-label products.
The various types are covered under the following heads, one by one. They are not inclusive of each other, and the market variations are sure to make changes in the desired amounts.
As Per Market Capitalisation
- Mid Cap Funds- This generally makes an investment of about 65 percent of their total assets in the equity shares of midcap organisations. These schemes are known to offer much better returns than large-cap funds.
- Large Cap Funds- This generally makes an investment of at least 80 percent in the equity shares of all large-cap organisations. These schemes are known to offer much more stability than other schemes.
- Small-Cap Funds- This generally makes an investment of about 65 percent of their total assets in the equity shares of small-cap organisations. This list is huge and comprises more than 95 percent of companies in India.
- Multi-Cap Funds- This generally makes an investment of about 65 percent of their total assets in the equity shares that belong predominantly to large-cap, mid-cap, and small-cap organisations. These schemes are known to offer much more stability than other schemes.
- Large and Midcap funds- Those who often invest about 35 percent of their total assets in equity shares of several types of mid-cap companies.
Based on Investment Strategy
- Sectorial or Theme Funds- These funds should invest a minimum of 80 percent of their assets in a specific sector or theme. Investors should know the difference between the sectors and themes. Sectoral funds should invest in an industry like technology, banking, FMCG, etc.
- Focused Equity Fund- This fund invests in an utmost of 30 stocks.
- Contra Equity Fund- As the name suggests, this scheme uses an aggressive investment strategy. Check out this scheme market to find underperforming stores, and I hope they will recover in the long run and buy them at a lower price.
Based on Tax Treatment
- Equity Linked Savings Scheme -The popular ELSS is the sole equity scheme that provides you tax benefits up to Rs 1.5 lakh concerning the relevant sections in the statutes related to investment
- Non-Tax Saving Equity Funds- Apart from ELSS, every equity fund are non Tax Saving scheme. This depicts that the returns of this scheme depend on the capital gains tax.
Based on Investment Style
- Active Funds- These funds are enthusiastically maintained by the investors or fund managers who select the stocks on their own in which they want to invest.
- Passive Funds- These schemes generally trace a market segment that regulates the list of stocks that the scheme will invest in. No role is played by the fund managers in selecting stocks under this scheme.
Large Cap Funds vs. Mid Cap Funds
Parameters of Comparison | Large Cap Funds | Mid Cap Funds |
Risk Involvement | Low | High |
High Returns Expectations | Low | High |
Liquidity | Very good | Good |
Availability of Company information | Very good | Good |
Conclusion
Wondering How Do Types of Equity Funds Work? It is quite simple and easy to grasp in one go. If a mutual fund scheme invests more than 60 per cent of its total assets in equity shares of the company, then it can be called an Equity Fund. It is essential to do a thorough study of each type to have no regrets later on. Once the fund is selected, the income can easily be streamlined. The remaining amount can be invested in money market instruments. The fund manager or the investor can choose which to invest in either in a growth-oriented or value-oriented way.
