Equity Mutual Funds have assets invested into Equities & Equity related instruments of different companies across market capitalisation with an objective of generating higher returns. These Mutual Funds generate higher returns as compared to Debt Funds and Fixed Deposits.
What are Equity Mutual Funds?
An equity fund is a mutual fund that primarily invests its assets in shares/stocks of companies. According to the Income Tax Act, an equity fund is defined as a fund that invests at least 65% of its assets in equities. It can invest the balance 0%-35% in debt and money market securities. Market-linked equity funds have the potential of giving inflation-beating returns taking a moderate to high amount of risk.
List of 5 Best Equity Mutual Funds
Below is a list of the top 5 equity funds which can help you in wealth creation and its appreciation.
|Fund Name||AUM (Cr.)||1-Year Returns||3-Year Returns||5-Year Returns|
|SBI Small Cap Fund||2,915||9.63||15.68||17.75|
|Mirae Asset Emerging Bluechip Fund||8,868||15.96||17.22||17.22|
|Invesco India Financial Services Fund||175||24.54||20.45||16.06|
|Axis Focused 25 Fund||8,800||21.07||20.39||14.34|
|Motilal Oswal Multicap 35 Fund||13,513||11.48||13.32||14.25|
(Data as on 20th November 2019; Source: Value Research)
Classification of Equity Funds
Equity Mutual Funds are classified categories of funds according to the investment preferences:
1. Sectoral and Thematic Funds
Mutual Funds allocating the assets in a particular sector are known as Sectoral Funds. These investment schemes specialise in investing at least 80% of the corpus in equities & equity related instruments of companies from a particular sector such as Infrastructure, Technology, FMCG, Real Estate etc.
Thematic Funds form the category of Equity Funds which invest in a theme-oriented pattern with multiple sectors. Some examples of thematic funds are- Emerging Businesses Funds, International Stocks etc.
2. Market Capitalisation
Under this category, funds are segregated according to the capital of the organisation involved-
- Large Cap Funds– Schemes investing in equity and equity related instruments of well-established, large companies in the market
- Mid Cap Funds– Schemes investing in medium-sized companies
- Small Cap Funds– Schemes in which assets are allocated in the shares/stocks of emerging businesses that have a potential for growth in the future
- Multi Cap Funds– Schemes that involve a portfolio with combination of shares/stocks of large, small and midcap companies
Who Should Invest in Equity Funds?
The investment decisions and choices are directly linked to the risk tolerance, financial goals and investment period. Equity Mutual Funds are suitable for:
- Investors who are willing to invest their money for a longer period of time. The suggested investment period in equity funds are 3 years or more as it gives the fund enough time to perform well
- New investors who want to explore the market and its functioning can invest in Large Cap Equity Funds. These funds invest the resources in the shares of top 100 companies that are well-established organisations with sustainable business plans. These organisations deliver stable returns and are less affected by market fluctuations
- Experienced investors, with enough knowledge about the functioning of markets, have diversified equity mutual funds as a good investment option. Diversified Equity Funds invest in the shares of different companies across market capitalisation to give the fund portfolio a fair chance of accruing higher returns under less risks as compared to small/mid cap equity funds
Advantages of investing in Equity Mutual Funds
Here are some advantages of investing your resources into Equity Funds:
1. Tax Benefits
According to the Section 80C of the Income Tax Act of 1961, Equity Linked Saving Schemes (ELSS) are the tax-saving investment that gives enough equity exposure to the investors. Lump sum investments for 3 years or more help the investors get a tax deduction in the current financial year for up to Rs 1.5 lakh
2. Low Investment Costs
Individuals can start their investments in equity funds with a nominal cost of Rs.500 per month via Systematic Investment Plan (SIP). Moreover, the Securities & Exchange Board of India (SEBI) has regulated a maximum 2.5% expense ratio on equity funds which is going to be reduced in the near future
3. High Wealth Accumulation
Investments made into equities & equity related instruments are known for delivering high inflation beating returns. As the price of stocks rise, the value of investment also appreciates. With these funds, investors get a good opportunity of rapid wealth creation
4. Diversified Portfolio
The investments are exposed to various stocks across market capitalisation which reduces the risk of losses. Having diversified stocks in the portfolio helps the fund sail through market fluctuations smoothly. During bearish market situations, even if some stocks undergo depreciation, the stocks outperforming make up for the losses
5. Professional Management
Each and every fund has a qualified manager who performs research on different stocks, undergoes crucial portfolio planning to make sure the assets are invested in a way that delivers maximum returns
Redemption of units of mutual funds is very easy and convenient. When in need, the investors can redeem their share of units and the corpus gets credited to the respective bank account within a week
Things to be Considered Before Investing
- Financial Goal- Evaluate and choose the best investment option which perfectly aligns with your financial goal. Equity mutual funds are mainly considered benefiting for long-term investment goals
- Performance of Funds– Always review the overall performance of the fund type over a period of time. Historical Returns can help investors decide whether a scheme is worth investing or not. Equity Funds are recorded as the highest returns delivering category of Mutual Funds.
- Risk Involved– For every investor, risk factor plays a dominant role. Equity Mutual Funds are considered riskier than other fund types. However, investing into Diversified Equity Funds reduced the risk involved. So, compute and determine the tendency of risks in any fund
- Lock-in Period- Equity Funds have a lock-in period of three years. One must consider the lock-in and holding period before planning investments into any of the funds
- Fund Management– There are different Asset Management Companies (AMC) with numerous underlying Mutual Funds. The Fund Managers calculate and decide the strategy of investments for every fund. It is very important to have a professional Fund Manager as well as a reliable Fund House
- Costs Involved– There are different costs involved in Mutual Fund investments such as Expense Ratio, Entry Load and Exit Load. Investors must review these costs before heading up for investments
- Other Portfolio factors: There are other different factors such as the fund NAV (Net Asset Value), AUM (Assets under Management), CRISIL Rank etc. which are to be viewed to make sure of the reliability and investor engagement in the fund
- The Short-Term Capital Gains (STCG) are taxed at 15% on holding of investment for up to 1 year.
- On holding the investments for more than 1 year, the returns are exempted from tax payment
- And, Long-Term Capital Gains (LTCG) more than 1 Lakh are taxed at 10% without the benefit of indexation.
- On making lump-sum investments via ELSS for 3 years or more, the investors get a tax deduction in the current financial year for up to Rs 1.5 lakh under section 80C of the Income Tax Act 1961
Mode of investment – SIP or Lump Sum
Investing lump sum amount per annum can be benefiting over a period of time. However, it is not feasible for every investor to get a large investment amount. On the other hand, through Systematic Investment Plan (SIP), anyone and everyone can start investing with a nominal cost of Rs.500 per month.
SIPs are not just convenient but they also give the investors the rupee cost averaging advantage. During bullish market conditions, investors are allocated with fewer units. Whereas, during bearish market, investors get more units.
How to Invest Online in Equity Funds through Paisabazaar.com?
- Sign Up/Sign In to Paisabazaar.com and go to ‘Direct Funds’
- Click on the section of ‘Equity Funds’
- Select the fund in which you want to invest and look at the details. You can also compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment.
- Click on ‘Invest Now’, select either Lump sum or SIP
Why Choose Paisabazaar?
- Trusted website, no commission charges and no paperwork
- You can compare more than 1,700 Funds at one platform instead of visiting the website of each AMC and then searching for numerous funds
- Easy to browse as Funds are segregated under Equity, Debt, Large Cap, ELSS, etc. You can further add filters of ratings, returns, fund houses
- Important scheme details such as latest Net Asset Value (NAV), expense ratio, assets under management, etc are also available on the portal, making it easier for consumers to pick a suitable fund.
Also Read About: Systematic Investment Plan (SIP)
List of Top Performing Equity Funds to Invest in 2020
Frequently Asked Questions
Q.1: Where can I find Equity mutual funds to invest in?
Ans: To find the best Equity Mutual Funds, you can simply log-in to Paisabazaar which gives you a detailed and analysed view of related funds. On Paisabazaar.com, start a direct search for Equity Funds after which you will be redirected to a complete list of suitable funds. You can compare different funds to get best returns.
Q.2: How to check the Net Asset Value of a fund?
Ans: The Net Asset Value (NAV) of the fund can be determined by deducting the liabilities involved. NAV can be checked on the domain of the fund itself or on other finance related websites such as Paisabazaar.
Q.3: How much should one invest in equity oriented schemes?
Ans: You don’t need a lot of money to invest in Mutual Funds as the investments can be made with a minimum amount of Rs.500 only. However, how much one should invest in equity oriented schemes is directly linked to the particular investment goal of the individual. For example, if someone wants to invest for a longer period of time and get higher returns, he should invest into Equities. Other factors that influence the investing startegy are- Financial Goa, Risks Involved, Fund Selection etc.
Q.4: How do I choose the best equity mutual fund?
Ans: There are numerous Equity Funds which makes the investing decision difficult. However, to choose the best equity mutual fund, you can focus on some basic factors such as- Expense Ratio, Financial Goal, Risk Tolerance and Risk Involved, High Turnover Ratios, Assets Under Management (AUM), Net Asset Value etc. These factors help the investors in evaluating the fund’s ability to perform during market fluctuations.
Q.5: What are some examples of equity instruments?
Ans: Some of the examples of equity instruments are- Preferred Stocks, Common Stocks, Warrants etc.
Q.6: Which equity SIP is best?
Ans: There are a lot of SIP which have performed beneficially for the investors in 2019 such as ICICI Prudential Bluechip Fund, DSP Tax Saver Fund etc. However, different investors with different goals prefer different SIPs according to their financial goals and the historical returns accrued by the fund. Click here to get a better understanding of SIPs: BEST SIP 2019