Equity funds – Mutual funds are getting very famous these days and consider to be one of the best investment options for investment. Equity funds also one the type of mutual funds. Equity funds usually offer high returns as compared to another type of funds and it can offer you a great return on your investments. Equity funds are volatile as a comparison to another type of funds but at the same time equity funds are also risky because the equity market never stays in the same trend for a long time. Investors can earn a good amount of returns if the money invested in equity funds after proper research and professional guidance.
Equity funds are further categorized in the various party on the basis of their market cap.
Types of equity funds
On basis of market cap
Large-cap funds – Large-cap funds focus primarily on investing in companies which have a large market cap. The large market cap of any company represents reputation and overall progress of any company. Large-cap funds invest up to 80% of total assets in companies which have a large market cap. These funds are a very good option to earn safe and steady returns because these companies are very stable and have a very good balance sheet. Large market cap companies marked into the top 100 companies in the equity market index.
Mid-cap funds – Mid-cap funds schemes focus primarily on investing assets in companies with mid-market cap and these schemes invest up to 65% portion of assets in companies which have a mid-market cap. These companies are stable but not as stable as large-cap companies. Mid-cap companies are volatile as compare to large-cap companies so these funds can offer higher returns but at the same time, they are a bit risky to invest if equity market movies in unpredicted move than investors suffer higher loss.
Small-cap funds – Small-cap funds focus primarily on investing assets in companies with small-market cap and these schemes invest up to 65% portion of assets in companies with small-market cap. Small-cap are very volatile and can be a very good investment option to earn a high amount of returns in a short time. If an investor invests its money on mid-cap funds with detailed analysis and professional advice than small-funds can bring you higher returns because of their high volatility but at the same time, it can be risky for beginners to invest in small-cap funds. Small-cap funds are very volatile if an investor picks bad performance small-cap company than it can bring higher loss so it is always recommended to invest in small-cap funds after professional guidance.
Multi-cap funds – Multi-cap fund schemes focus on investing assets in all three small, mid and large-cap companies and these schemes maintain a diversified portfolio. Multi-cap funds can be really good options to earn maximum return on your investments because in these schemes you or fund manager can choose the best companies from all three caps to invest your money. In these schemes, you can get the risk and reward ratio on your investments.
Benefits of equity funds
Higher returns – Equity market is very dynamic and its always changing with global events. Investing in a dynamic and volatile market can be very beneficial for earning high amount of returns in a short period of time. The equity market is always moving because of that you always have possibilities to earn more and more returns on your investments.
Diversification of investment portfolio – Diversification of a portfolio is always important to reduce risks of loss and diversification allows you to achieve the best possible risk to reward ratio. Equity funds allow you to invest in stocks of multiple companies or you always have the choice to invest in companies of multiple caps under multi-cap fund schemes, multi-cap schemes can deliver you best possible returns if invest after detailed research and fund manager’s advice.
Liquidity – Liquidity is an important factor to consider when you are investing your money and it is always important to invest your money in highly liquid schemes. Higher liquidity allows you to get money quickly back in your bank accounts once you exit from your investment scheme. Equity funds have high liquidity which allows investors to exit and get back your money within 48-72 hours.
Risks of equity funds
Higher volatility – Higher volatility allows investors can earn maximum returns but at the same time it can also work in an adverse way is equity market start moving in downtrend or unpredicted way. High volatility makes the equity market or shares very dynamic which can make investors lose money faster if equity market moves in the downtrend.
Lock-in period – Lock-in period is a very important factor in any kind of investment if any investment scheme has a very long lock-in period that makes a scheme less liquid. ELSS has a lock-in of 3 years which means an investor cannot exit from the scheme before 3 years if the investor wishes to exit before 3 years He/She will have to pay penalty charges.
Too many schemes – Equity market is highly diverse and dynamic so it has 500+ schemes available to invest but is can confuse investor to pick the right scheme for itself. If by mistake investor picked the wrong scheme He/She may suffer loss and it is highly recommended to consult your financial advisor or funds manager before investing in any equity funds scheme.
To invest in any financial market you need to learn basics information about that market before investing your hard-earned money. Equity is highly diverse and dynamic for experienced investors it is easy to earn profits from equity market but high volatility can be risky for new investors who don’t have much experience about the market. New investors should start their investments in the equity market with a small amount so they can learn investing in equity without suffering any major loss.