Best Equity Mutual Funds In Nagpur

How do Equity Funds work?

An equity fund invests 60% or more of its assets primarily in equity shares of companies in varying proportions as mentioned in its investment mandate. It might be a purely large-cap fund or a mixture of market capitalization. Moreover, the investing style may be value-oriented or growth-oriented.

After allocating a major portion of equity shares, the remaining amount may be invested in debt and money market instruments. This is done to address redemption requests raised by the investors. The fund manager keeps buying or selling a particular stock to take advantage of the changing market movements.

Types of Equity Funds

A. Based on Sector and Themes

Equity funds that focus their investments on a particular sector or theme fall under this category. Sector funds are those that invest in one particular industry, like FMCG or Pharma or Technology. Thematic funds are those that follow a particular theme, like emerging consumer companies or international stocks.

Since sector funds and thematic funds are concentrated in a particular sector. They tend to be riskier than diversified equity funds because their performance is entirely dependent on the particular sector of the economy.

However, sector and thematic funds can be diversified in terms of market capitalization.

B. Based on Market Capitalization

Large-cap equity funds invest primarily in large-cap stocks. Different fund house categorizes stocks differently, but large-cap stocks are stocks of the biggest listed companies of the economy. Typically, large-cap companies are well-established companies, which makes large-cap funds stable and reliable investments.

Mid-cap equity funds and small-cap equity funds are funds that invest in mid-sized and smaller companies respectively. There are even funds that invest in both mid-cap as well as small-cap funds. They are called mid- and small-cap funds.

Since smaller companies are prone to volatility, mid-cap and small-cap funds deliver fluctuating returns.

Equity funds that invest across market capitalization, which is in large-cap, mid-cap and small-cap stocks, are called multi-cap funds.

C. Based on the Style of Investing

All the funds discussed above follow active investing style wherein the fund manager modifies the portfolio composition to suit market movements. However, there are funds whose portfolio composition imitate a specific index.

Equity funds that follow a particular index are called index funds. These are passively-managed funds that invest in the same companies, in the exact same proportions, that make up the index the fund follows.