There are many different types of equity mutual funds available in the market.
Equity funds invest in stock markets, so compared to other products it has more risk. As we talk about risk and return go hand in hand, the returns are also higher in equities. It is advisable that if an investor is looking for an investment in equities, their holding period should be at least 5 years or more. There are many different types of equity mutual funds with varied risk involved.
1. Growth Funds – These funds generally invest for capital appreciation with time. The motive is to invest in to those companies that are expected to outperform the markets in future.
Some funds to consider here are:-
– Emerging Bluechip Funds
– Equity Opportunities Funds
2. Speciality Funds – This have a stated criteria for investments and their portfolio comprises of only those companies which meet their criteria. Some of them are:-
– Sector Funds
Equity funds which invest into a specific sector/industry of the market. If you want to invest specifically in any sector/industry, through these type of funds you can invest.
These funds have the option to invest in foreign equities, for geographical diversification. These are termed less riskier than sector funds as the diversification is global. However the risk involved here is exchange rate and country. At this stage of you should consider, geographical diversification in your portfolio.
Some funds are:-
Developed world indices funds
Emerging Equity Markets funds
– Mid cap and Small cap
Companies having lower market capitalisation then the large capitalisation companies are call mid and small cap. Mid cap companies market cap varies between 20000 – 5000 Cr and Small cap companies are less than 5000 Cr. The companies are relatively smaller in size but has the huge growth as well as return potential. This is the reason small and mid caps are termed as riskier than bluechip or large cap. One should consider investing in these funds only if there holding period is near about 7-10 years minimum.
3. ELSS ( Equity linked savings schemes )
This is the scheme which will help you in tax saving under sec 80C. Investing in ELSS, helps you to save taxes upto 1.5 Lakhs. But as you taking a benefit of tax, the amount will be locked in for 3 years from the date of investment.
As in mutual funds there are two methods to invest,
SIP ( Systematic Investment Plan )
Lump sum, the lock-in is different for both.
For Eg:- You are investing 5000 as SIP in ELSS from Oct 2021 and you have also invested 50000 as lump sum in ELSS. After 3 years I.e. Oct 2024 Lump sum amount you will be able to withdraw with interest, but SIP amount you will not be able to. In SIP you was making the instalments monthly, so after 3 years you will be able to withdraw monthly. The other to redeem lump sum is stop the SIP and redeem after 3 years.
4. Equity Index Funds
These are passively managed funds. The expense ratio is very less compared to actively managed funds. The main objective of these funds is to match the performance of a specific stock market index. Eg:- NIFTY, SENSEX, NASDAQ, S&P etc.
5. Value Funds
The main objective of the fund is to invest in undervalued stocks. The stocks which are trading lower than its intrinsic value. I know you it’s all confusing, let me explain in simple terms.
When an X stock is trading at 100, but as compared to the index/ sector the stock should be trading around 150. This simply means that the stock is undervalued. There are many different parameters to check whether a stock is undervalued or not.
This is basically a style of investing, one of the style which warren buffet applies in his investment.
For more details contact MyFundSIP or drop an email at [email protected]