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Your Comprehensive Guide to Different Types of Equity Funds

Your Comprehensive Guide to Different Types of Equity Funds

Since the time mutual funds were introduced, the preferences of investors have evolved, and people are now looking to invest in more sophisticated investment options land have questions like what is flexi cap fund and so on. One such investment avenue is equity mutual funds.

Equity mutual funds are those schemes that primarily invest in equity markets. According to the current SEBI Mutual Funds Categorisation, equity mutual funds need to invest a minimum of 65% of their assets in equity and other equity-related instruments. These funds can potentially generate returns by investing in company stocks across the market.

If you’re also planning to invest in equity funds, you’ve come to the right place. In this article, we will be discussing the different types of equity funds and discuss what is flexi cap fund in detail. So, keep on reading!

Types of Equity Funds

Equity funds can be categorised based on their primary investment avenues and the investment mandate. Here are the different types of equity funds that you can choose from –

Based on Market Capitalisation

  • Large Cap Equity Funds

These funds invest in enterprises that rank between 1 to 10 in terms of market capitalization. The best large cap mutual funds are considered to be the least risky investment option if you want to venture into equity investments. They are also known to perform decently well despite market volatility and offer sustained returns.

  • Mid Cap Equity Funds

These schemes invest in enterprises that rank between 101-250 in terms of market capitalization. These are less risky than small-cap equity funds and riskier than large-cap equity funds. However, these funds sometimes offer better growth potential than even large-cap equities.

  • Large and Mid-Cap Equity Funds

These mutual funds divide the equity allocation evenly between mid- and large-cap funds to provide both strong returns and stability. The allocation to both of these market caps is 35% of the total asset value.

  • Small Cap Equity

Small cap equity funds invest in firms that rank above 250. These funds are regarded to be the riskiest when compared to large- or mid-cap equity funds, but they also have the potential to produce the biggest returns.

Based on Investment Style

The majority of the equity funds described above employ an active investment strategy, which means that the fund management determines the portfolio’s composition. There are, however, mutual fund schemes whose portfolio composition is modelled after a certain index.

Index mutual funds are equity funds that track a certain index, such as the Nifty50 or the Sensex. These passively managed funds invest in the same firms as the index they track in a comparable proportion. These funds are low-cost because the fund manager is not required to actively manage them. If you are eyeing small cap companies, you may want to invest in Vanguard Small Cap Index Fund.

Meanwhile, equity mutual funds that concentrate their assets on a certain subject or area fall into this group. Sectoral funds invest in a certain industry or area of the economy, as defined in the offer documents, such as pharmaceuticals, fast-moving consumer goods, technology, or infrastructure. The returns are determined by the performance of the underlying industries/sectors.

Thematic funds, on the other hand, invest in sectors based on a specific investment theme, such as solely investing in foreign equities or developing consumer firms. According to SEBI (Securities and Exchange Board of India) requirements, these funds must invest at least 80% of their capital in stocks of a certain subject. These funds’ success is determined by the performance of the appropriate sectors or investing themes.

What is a Flexi Cap Fund?

Now that we have understood the different types of equity funds let’s talk about what is a flexi cap fund.

A flexi cap fund is a kind of mutual fund that does not have a pre-defined investment restriction based on market capitalization. This provides the investor with excellent investment choices and diversification possibilities.

What are the Benefits of Flexi Cap Funds?

Now that we know what is a flexi cap fund, let’s discuss the benefits of investing in these funds –

  1. Fund managers can invest across market capitalization
  2. They enable a well-diversified equity strategy
  3. They provide an ability to harness opportunities in the market spectrum
  4. They let you capitalize on investment opportunities
  5. They offer an excellent balance between risk and returns

Wrapping Up

Now you know everything there’s to know about equity funds and have understood what are flexi cap funds. To sum up, investing in equity funds is an excellent option for anyone who wishes to diversify their portfolio and earn better returns. The idea is to choose your funds wisely and make an informed decision before putting in your money.

Review Your Comprehensive Guide to Different Types of Equity Funds.

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