Risk Factors and Returns in Equity Mutual Funds
Equity mutual funds invest in different types of shares according to the present market condition. Such mutual fund is famous for high return capability; it invests in the shares of several companies after a sincere study of their market value and past records. Investors need to have a study on the present market condition and the past record of a mutual fund before investing in the equity fund of it to avoid potential losses. All equity mutual funds are not the same; Investors need to have a clear cut idea of a type of equity fund before moving for investment. An equity mutual fund is liable to invest at least 60% of its total wealth in the equity shares of different companies; the rest of the portion it invests in debt funds or in other schemes.
Types of Equity Mutual Funds
Equity Mutual Funds on the basis of Risk Factors
Mutual fund investment is subject to market risk; an equity mutual fund is also no exception. The fund manager of an equity mutual fund organizes the scheme on the basis of risk factors too. As an equity mutual fund invests more than 60% of its assets in equity shares, it bears a comparatively greater risk than a debt security fund. However, the risk factors also depend on the market capitalization of the shares of a company. Equity funds that invest in large-cap funds of the top 100 shares bear fewer risk factors than the equity mutual funds which invest in the mid-small cap funds.
Funds on the basis of Market Capitalization
Equity mutual funds can be categorized on the basis of the market capitalization of the company where it is investing. Some equity mutual funds invest in large-cap funds for a secured return over a period of 2-4 years. This fund comprises blue-chip companies that have the largest amount of market capitalization. On the other hand, medium-small cap funds are comparatively volatile, have greater risk factors, but have better return possibility. These mutual funds invest in the shares of the companies that share a comparatively lesser amount of market capitalization. Some equity mutual funds are Flexi-cap funds, as the fund managers don’t depend on market capitalization value, but the potentiality of the share.
Funds of the Basis of Themes
A number of equity linked mutual funds in the current market invest in the shares of a specific type of company. These are the theme-based equity funds that choose shares from different sectors like pharmaceuticals, real-estates, banking, and finance, etc. The fund manager of such mutual funds chooses the shares of companies on the basis of a common theme. For instance, if the average market of infrastructure is going well now, he might choose the shares of different infrastructure companies from different levels of market capitalization. This type of equity funds are less flexible and bear a comparatively greater risk. However, in terms of return, they have a good record too.
Funds on the basis of Features
Equity mutual funds can be categorized on the basis of features of the investments. Some funds offer the investors the opportunity of investments through a Systematic Investment Plan (SIP). You also get the option of investment in ELSS funds for tax saving U/S 80C of the Indian Income Tax Act.
To Sum up
Equity mutual funds are suitable options for those who want to take mutual funds as goal based investing. Here you have a high scope of earning a good amount with such investments. Otherwise, you get benefits like tax savings under 80C in several equity funds under the ELSS scheme. Before investing in an equity mutual fund, you need to be aware of your criteria like risk factor, tax exemption, the term of investments, etc. You should also study the market over a few years and go through all the terms and conditions before choosing a fund for investment. The best equity mutual fund is that fund which matches your investment capability and financial goal well. Your financial portfolio is diversified when you invest in equity mutual funds. This increases your earning and your credibility as a prospective investor. You can choose and invest online in an equity mutual fund according to your financial goal and risk appetite. Consult an AMFI Registered Mutual Fund distributor to know more.
