What are the Types of Equity Funds?

Equity funds are a class of mutual funds that invest in equity instruments issued by companies. Equity funds can be categorized based on their market segment, portfolio, or investment strategy.

1. Large cap funds are equity schemes that mainly invest in stocks of companies with large market capitalization. Large cap companies are well-established and reputed companies in the stock market that have achieved a significant level of stability.SEBI defines large cap companies as the top 100 companies in the stock market in terms of market capitalization. Large cap funds are typically recommended to risk-averse equity investors who intend to create wealth by adopting a slightly conservative approach. However, such funds tend to offer lower returns as compared to midcap and smallcap funds.{2D743194-97C2-43F9-BC28-AEC370801ECD}Mid cap funds are equity schemes that predominantly invest in mid cap stocks. The mid cap segment constitutes those companies in the stock market that fall in the top 101-250 bracket in terms of their market capitalization. These companies have the capability for higher growth and thus offer higher returns. However, they are also more susceptible to volatility and are thus riskier than large cap companies.The appealing feature of mid cap funds is that they lie in the moderate zone when it comes to potential risks, expected returns, and liquidity as compared to other market-segment funds. They are thus suitable for equity investors with moderate risk appetite.Small cap funds are equity funds investing largely in small cap stocks. This segment encapsulates the companies ranking 251st and above in the stock market as regards to their market capitalization. Small cap funds tend to be the riskiest amongst all other market-segment funds but also offer highest return potential. They are extremely vulnerable to economic downturns, therefore they are best suited to risk-aggressive and experienced investors who are well-versed with the stock market.Multi-cap funds invest across large cap, mid cap and small cap stocks. Equity multi-cap funds offer better risk diversification by exposing their portfolio to all market segments. Sector funds concentrate their investments on a specific sector. For example, a banking sector fund invests only in stocks of banking companies. The returns of such funds are linked to the performance of the sector they invest in.Thematic funds are mutual funds that invest in securities of companies that are connected by a common theme. Fund managers of thematic funds concentrate the portfolio on one core element of the economy. The theme may be anything from stocks of international companies to commodity stocks and may range across various sectors.E.g.: An infrastructure theme fund invests in multiple sectors like cement, power, steel, real estate, etc. A manufacturing theme fund invests in securities of companies engaged in manufacturing that belong to various industries like chemicals, pharmaceuticals, automotive, etc.Apart from these, there are many other types of equity funds such as diversified equity funds, dividend yield schemes, growth funds, focused funds, equity-linked savings schemes, etc. Investors must acquaint themselves with the different types of mutual funds so as to make an informed choice.

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.