Different Types Of Best Equity Funds and Their Benefits

Equity funds, like other mutual funds, work on the pooling of resources for investments. The money is invested in stocks/shares of companies across different sectors that are expected to perform well as per the market analysis. The investment is made in view of generating good returns for the investors.Since the growth of the fund is dependent on the market fluctuations, equity funds are popular among investors who wish for higher returns despite a fair amount of risk involved.There are different types of equity funds available in the market based on market capitalization, investment strategy, and tax-benefits. Let’s look into different popular categories of equity funds and their advantages for you.

• These funds invest in companies with a higher market capitalization, above $10 billion. These companies are reputed and established with strong goodwill, which falls in the top 100 companies in the stock index in terms of market capitalisation.
• The return on investment or growth potential is generally low but fairly stable, especially in the long run.
• The liquidity of shares in this fund is generally high since the companies have a brand value in the market.

• These funds invest in companies with a medium market capitalisation that generally falls between $2 - $10 billion. These companies are also reputed and fall in the top 101-250 companies in the stock index.
• The potential of return, as well as the risk involved, is higher in comparison to large-cap funds.
• The liquidity of shares in this fund is on a higher side due to association with trustworthy companies.

• These funds invest in companies with a lower market capitalisation, generally less than $2 billion. These companies are relatively smaller but have higher growth potential.
• The return potential is fairly higher, but it involves greater risk than large and mid-cap funds.
• The liquidity of shares in small-cap funds is the minimum as compared to large and medium cap funds.

• These funds invest both in debt and equity segments in a certain ratio. Also known as hybrid funds, they help investors in maintaining a diverse portfolio.
• They provide a good balance between risk and returns as the debt investment balances out the risks with equity funds.

• ELSS is an equity fund that invests over 80% of the money in equity and related instruments. It is the only equity fund that allows you to avail tax benefits under section 80C. However, it comes with a mandatory lock-in period of 3 years.
• Since a larger amount is invested in equity, it has the potential for higher returns. But at the same time, the risk is also on the higher side.

• Sector mutual funds invest in companies pertaining to a specific sector such as banking, pharmaceuticals, oil industry, etc.
• They may be risky as they are focused on only one sector but may be beneficial if there are predictions of that sector to perform well in the coming times. For Example: if the banking sector is performing well and investment is made specific to the banking industry, the returns may be promising.

• Index funds emulate indexes such as NIfty, BSE or the NSE, on which they are based. Hence the returns are comparable to the index that it imitates.
• The investments are made in the same securities as in the underlying market index and in a similar composition.
• As the index funds follow a market index and are managed passively, the risk is lower, and the funds are less volatile.

1. Large-Cap Funds:
2. Mid-Cap Funds:
3. Small-Cap Funds
4. Balanced Equity Funds:
5. ELSS (Equity Linked Saving Scheme):
6. Sector Funds:
7. Index Funds:

With a variety of equity funds available in the market, you can choose the best equity funds as per your preference, your risk appetite and financial goals. Also, you must consider your level of understanding of the stock market to choose the right fund.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.