Types of Equity Funds | Basics

We told you different types of mutual funds. Equity funds are the most popular among different mutual funds. Today, we will discuss in detail about equity funds. What kind of investors should invest in the type of equity fund? What will be the difference between large caps, mid-caps, small-caps and sector funds?

Equity funds are the most popular among different mutual funds. Today, we will discuss in detail about equity funds. This fund is so popular because these funds invest in the stock market and can give returns as well. Most equity funds invest in companies according to market capitalization and are classified accordingly. Equity funds are mainly divided into large caps, mid-caps and small-caps.

Large-cap funds:- mostly invest in large companies. Funds invest these companies according to the size of their market capitalization. These companies are considered safe for investment because they are well-established companies in their industry sector and in a way the top companies are likely to be in large caps. This is the reason why large-cap funds are considered suitable for equity investors who do not like to take more risk. These funds are likely to give simple returns while taking a relatively low risk.

Mid-cap funds:- invest in most mid-sized companies. Investing in these companies can also lead to some risks because they may not be able to grow according to their full potential. However, if these companies develop and become big companies, then they can be very beneficial for the investors. Invest in investors who can afford more risks.

Small-cap funds:- invest in small companies. Investment in these companies can be very risky because very little information about them will be available in the public domain. However, these companies can give extraordinary returns. These funds are suitable only for high-risk investors.

Diversified Equity Fund:- Based on the market view of the fund manager, the diversified equity funds invest in companies with different size market capitalization. Because the portfolio is spread over various market capitalization, they are less risky than mid-caps and small-cap funds, but slightly higher risk may be compared to those of large-cap funds. These funds are suitable for investors who can afford the general risk.

Equity Linked Savings Scheme(ELSS):- or Tax Planning Mutual Fund is suitable for investors to save taxes under Section 80C of the Income Tax Act. Investments in these funds are eligible for tax deduction up to Rs 1.5 lakhs. They come with a mandatory lock-in period of three years. This means that you can not redeem these funds for three years after making a test.

Sector funds:- mostly invest in shares of companies in a particular area. Since the investment is centred on one area, the sector fund is considered to be extremely risky. For example, the real estate sector fund will invest only in real estate companies. Changing the economy into various cycles also foresees the fate of the areas. Investors should invest only a small part of their investment in the Sector Fund.

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