Different types and benefits of Equity funds

What are Equity Funds?

As the name suggests, Equity Funds are among the most popular tax saving funds that invest in the shares of different companies. As the funds are managed by professionals, these fund managers spread your investment across different sectors to get higher returns and diversify the risk.

Equity schemes are known to offer better returns than debt funds. But here the risk is associated with your investment as the funds’ performance depends on various market conditions.

Types of Equity Mutual Funds

* Large-Cap Funds – These types of funds typically invest at least 80% of their assets in equity shares of large-cap companies i.e. the fortune 100. These equity schemes are known to be more stable the mid-cap or small-cap funds.

* Mid-Cap Funds – These funds invest 65% of their total assets in mid-cap companies’ equity shares. These companies come in the top 101-250 companies list based on their market capitalization. Though these schemes tend to offer more returns than large-cap funds they are more volatile and could lead to more loss when the market falls.

* Small-Cap Funds – Small-cap schemes invest 65% of their total assets in equity shares of small-cap companies. These are the companies that stand below 250th place based on their market capitalization. Almost 95% of the companies in India fall into this list. Small-cap funds are highest in the list in terms of offering returns than mid-cap and large-cap funds. However, small-cap schemes are the most volatile.

Why should you invest in equity schemes

1. Professional Fund Management

Your investments are managed by the professionals of the fund houses. These professional managers have a more comprehensive perspective when it comes to markets and different industry sectors. It’s their job to research, analyze, and keep a tab on the market trends and advise investors of any great investment opportunity or threat. That way, you don’t have to have the expert skills of managing investment and market analysis also take the time out to do it yourself. Managing our funds by professionals is always better.

2. Diversification

Most equity mutual funds are well diversified across stocks and sectors. So, your investment is not over-exposed to any particular sector. Diversification helps protect your investment against sudden market falls and secures you from a major loss.

3. Tax Efficiency

Equity schemes are among the most popular tax-savings schemes. The long-term capital gains from the equity schemes up to Rs 1 lakh per year are exempted from the taxable income. If your long-term capital gains exceed the Rs 1 lakh limit then it will be taxed at the rate of 10%.

After knowing the different types of equity funds, their return rate and risk nature, and the benefits of equity schemes we hope it will be easier for you to plan your investment and invest in the right equity schemes to achieve your financial goals.