Equity funds invest in equity instruments issued by companies. The funds target long-term appreciation in the value of the portfolio from the gains in the value of the securities held and the dividends earned on it. The securities in the portfolio are typically listed on the stock exchanges, like NSE, BSE and the changes in the price of the securities are reflected in the volatile returns from the portfolio. These funds may be categorized based on the form of equity shares that are within the portfolio and the strategy or style adopted by the fund manager to select the securities and manage the portfolio.
Types of Equity Funds
Diversified Equity Fund
A diversified equity fund invests in companies irrespective of size and sector. It diversifies investments over the stock market in a bid to increase gains for investors.
Market Segment Based Funds
Market Segment based funds invest in companies of a market size. Equity stocks may be segmented based on market capitalization as large-cap, mid-cap, and small-cap stocks.
Sector Funds
Sector funds invest only in a specific sector. It is an equity scheme which invests in shares of companies operating in the specific sector. Such as a banking sector fund will invest in only shares of banking companies. Gold sector fund will invest in just shares of gold-related companies.
Thematic Funds
The Thematic Funds are a kind of mutual funds which invest in line with an investment theme or across the sectors related to the common theme. This means, if the fund is built on an infrastructure theme might invest equities in toll-collection construction, cement, steel, telecom, power and the other companies that are related to the infrastructure sector.
Equity Linked Savings Schemes (ELSS)
ELSS are tax-saving mutual funds that you can use to reduce taxable income by up to Rs 1.5 lakh under Section 80C. ELSS funds investment is subject to have a lock-in period of 3 years and invest a majority of their portfolio in the stock market.
ELSS are diversified equity funds which offer tax benefits to investors under section 80 C of the Income Tax Act up to an investment limit of Rs 1.5 lakh in a year. ELSS are required to hold at least 80 percent of its portfolio in equity instruments. The investment is subject to lock-in for a period of 3 years.
Strategy-Based Schemes
Strategy-based Schemes have portfolios that are created and managed according to a stated style or strategy.
Value Fund
Value fund is a stock mutual fund that invests in shares of basically strong companies which are currently undervalued in the market with the hope of benefiting from an increase in price as the market recognizes the true value.
Growth Funds
Growth Funds portfolios feature companies whose earnings are expected to grow at a rate higher than the average rate. These funds aim at providing capital appreciation to the investors and provide above-average returns in bullish markets. The volatility in returns is higher in such funds.
Focused Funds
Focused funds hold portfolios concentrated in a limited number of stocks. Selection risks are high in such funds. If the fund manager selects the right stocks, then the strategy pays off. If even a few of the stocks do not perform as expected the impact on the scheme’s returns can be significant as they constitute a large part of the portfolio.
Rajiv Gandhi Equity Savings Schemes (RGESS)
Rajiv Gandhi Equity Savings Scheme(RGESS) is really a new equity tax advantage savings scheme which provides tax benefits to first-time for equity investors, with the stated objective of encouraging the savings of the small investors in the domestic capital markets. These Investments are subject to a fixed lock-in amount of 1 year, and a flexible lock-in amount of 2 years.
