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EQUITY MUTUAL FUNDS

Investor’s money is collected into a corpus and invested, as a total, in different companies for profitable opportunities. This is the basics of all Mutual Fund Investments.

An Equity Mutual Fund invests in equity shares or stocks of companies of different market capitalizations. The aim is to generate high returns than debt funds and other investment schemes.

These Funds can be managed actively or passively by their respective fund managers. The fund managers are experienced professional portfolio managers, who are hired for their expertise in the market and funds.

The fund managers make the selection and decision about which stocks and shares of companies are to be bought using the corpus collected. These predictions are based on detailed market research and analysis. These investments are expected to grow over the long-term. That helps investors tide over the risks attached to such market-linked investments.

To be able to create wealth over both mid and long-term, Equity Mutual Funds should be the vehicle of choice. By investing in the right Equity Funds, investors have been able to meet higher education expenses of the child, buy a property, live comfortably after retirement, and so on. The list is endless.

How Do Equity Mutual Funds Work?

Following the provisions laid down by SEBI, Equity Mutual Funds must invest at least 65% of the corpus in equities and stocks. Whether large-scale industries, mid-scale businesses, or small-scale entities. They invest according to the investment mandate of that specific Scheme. In other words, a “Large Cap” Equity Mutual Fund will not invest in Small Cap companies, “Thematic” Equity Schemes will invest in stocks around a certain theme, etc. (Equity Funds can also be categorized according to Company Size, the Holdings in the Portfolio, Business Sector, etc.)

The performance of the company decides the returns of the scheme.

After allocating the major part of the corpus proportionally between companies as per the investment mandate, the Schemes put the balance corpus into debt securities and money market instruments. This keeps the Funds liquid enough to meet the withdrawal requests of investors. And provides stability to the Scheme Corpus, in case of sudden redemption requests. It also reduces the risks involved with stocks.

Types of Equity Mutual Funds

Equity funds can be categorized based on the size of the companies (market capitalization) they invest in, the geography they focus their investments in, the investment style, or the industrial sectors, etc.

Based on Market Capitalization

Large-Cap Equity Mutual Funds Small-Cap Equity Funds Multi-Cap Funds Mid-Cap Funds
They help you maintain stability in your portfolio as they are less volatile than their mid and small-cap counterparts. Though, they also generate lower returns, comparatively. The capitalization is reviewed by the SEBI and the top 100 companies are named as large-cap ones. And at least 65% of the corpus is invested in these top 100 companies. They invest at least 65% of their total assets in small-cap stocks. The companies that have been ranked 251 or below, in terms of market capitalization. Small-Cap Funds investments suit people who are ready to embrace higher volatility and risk to earn higher returns. The equity schemes that invest at least 65% of their funds across the large-cap, mid-cap, and small-cap stocks. These funds bring the advantage of investing across the market. Multi-Cap Funds are able to take advantage of both growth and value style of investment. They are also known as Balanced or Hybrid Funds. The funds that invest at least 65% of its corpus in Mid-Cap stocks. That is, the stocks of companies ranking from 101st to 250th position in terms of total market capitalization. They provide relatively higher returns than large-cap funds. But they are prone to higher volatility as compared to large-cap equity schemes. Suitable for investors with relatively higher risk appetite.

Based on Tax treatment

ELSS Non-Tax Saving Equity Funds
ELSS or Equity Linked Saving Scheme is an open-ended equity fund that provides tax benefits. At least 80% of the total corpus is invested in equities and equity-related instruments. Such funds come with a statutory lock-in period of 3 years. Investments in these are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. All Equity Mutual Funds other than ELSS are non-tax saving ones. These funds are subject to Short Term Capital Gains Tax (STCG) or Long Term Capital Gains Tax (LTCG) based on whether you have kept the investment for less than or over 12 months.

Based on Growth or Regular income

Growth Equity Fund Dividend Funds Value Equity Fund
The primary objective of a Growth Equity Fund is of creating wealth. It strives to achieve this by investing the corpus in a diversified portfolio of growth-oriented stocks. These funds either do not pay any or pay a very little dividend. All or most of the profit received is reinvested. Growth Equity Funds invests in companies that have high growth potential and good corporate earnings. The Equity Scheme investing at least 65% of the total assets in dividend-yielding stocks. Such funds invest in stocks that are capable of providing good dividends. Though the funds are not under any obligation to declare dividends. An open-ended equity scheme following a value investment strategy. They invest in stocks that are presently underperforming, and, therefore, are available at a discount. The stocks chosen are bought at a very low valuation, and when the value spikes – are sold off or held depending on the investment mandate.

Based on Management Style

Active Funds Passive Equity Funds
Equity funds actively managed by the fund managers are referred to as Active Equity Funds. With Active Mutual Funds, managers strive to buy stocks to secure higher returns than its benchmark. Since Active Funds have relatively more frequent changes in the investments held in the portfolio than Passive Funds, the fund management expenses and fees are also higher. These funds track a market index or some particular market sector to determine where to invest in. They may be Index Funds, ETF, etc. ETFs don’t get actively managed by fund managers. Instead, they may simply copy an index or a benchmark and endeavor to replicate its performance.

Based on Investment Strategy

Focused Equity Fund Sectoral/Thematic Equity Fund Contra Equity Fund
This open-ended equity scheme invests at least 65% of the total corpus in a maximum of 30 stocks. The market capitalization segments, which it intends to focus, are provided in the investment mandate. Other equity funds, usually, have 50-100 stocks in their portfolios. Therefore, the risk tends to be higher for Focused Equity Funds than other types. They also have more potential of giving good returns. An open-ended scheme that invests at least 80% of its total assets in a particular sector, industry, or theme. It may be Banking, Pharma, or IT. These funds have the risk factor that their returns are dependent on the performance of a single sector. But if it is timed correctly, extremely high returns can be earned too. An open-ended equity scheme, it follows a contrarian investment strategy. Implying the fund invests against the ongoing marketing trends. And bets the funds on currently underperforming stocks. The assumption is that these current underperformers will improve in the long term, as soon as the short-term volatility disturbing them get decreased.

Who should invest in equity mutual funds?

Whether you are a beginner or a seasoned investor, anyone can invest in Equity Mutual Funds to enjoy various benefits. The goal to invest would be to increase the value of their money. As most Equity Funds are managed by an expert team and its fund manager, therefore, not much research is required before investing.

Still, the investor must have a moderate to high-risk appetite, must be planning for long term (at least 3-5 years) goals. Investments in Equity Mutual Funds are also ideal for those who want to invest in the stock market but are not as well-versed in equity investing or do not have a large amount of money. They get exposure to equities with a small investment amount.

The investors who have zero risk appetite should not opt for these funds. They may invest in Debt or Liquid Mutual Funds instead. Which are safer but generally, provide far lower returns.

Why Invest in Equity Mutual Funds?

Liquidity

Equity Mutual Funds are highly liquid investments because the stocks are actively traded, every day, across all major exchanges. Investors get the convenience of buying and selling their stocks as and when they require. On redeeming the units of equity funds, the money is usually credited to your bank account within 2-3 days.

Dividend Income

Investing in Blue Chip Funds help investors earn a steady income in the form of dividends. Most of such funds pay out regular dividends even during volatility in the market. By diversifying your portfolio, in the right balance, you can get a steady dividend income, as well as some wealth creation.

Diversification of Portfolio

Investors can diversify their portfolio through regular investing in more than 1 or 2 types of funds. For example, they can invest in funds with different market capitalizations. So, even when one stock drops in value, the others would make up for that loss.

Ideal Investment Vehicle

Equity Mutual Funds are ideal investment vehicles for the most general public. Since they are not as well-versed in financial investing, they do not have the time, are unable to put the efforts, to learn & understand the causes of stock market fluctuations. Or are unable to spare a large amount of capital with which to invest. This makes Equity Funds a practical investment for small individual investors.

Benefits of Investing in Equity Mutual Funds

According to a study by Nifty on the average returns for the past 15 years, the Indian stock market has returned about 16%, on average.

Inflation-beating Returns

Equity Funds have historically been able to provide market-beating and inflation-beating returns, as compared to other investment options available in India. Most traditional and safe investments like Fixed or Recurring Deposits, PPF, Insurance, etc. offer a rate of interest that provides almost no increase in the value after accounting for inflation.

Tax Benefits

ELSS or Equity Linked Savings Schemes, allow for up to Rs.1,50,000 to be exempted from annual taxable income. ELSS is also the only tax-saving instrument u/s 80C giving such high returns, historically. No other investment schemes, exempted under this Section, have been able to match the returns generated by Equity Mutual Funds.

Wealth Creation

As one of the only few investment products that provide inflation-beating returns, Equity Mutual Fund Schemes are the best option for those who wish to invest and grow their wealth over medium to long term.

Professionally Managed

Most Equity Mutual Funds are managed by professional fund managers with advice from a team of market analysts. This live tracking on investment stocks and securities and other investment opportunities reduces the risk and clarifies the choice of which stocks to invest in.

Liquidity

Mutual Fund units can be bought and sold/redeemed whenever you need the finances. Except for ELSS funds, that have a mandatory lock-in period. Though Mutual Fund Investments are not as liquid as a savings bank account, the liquidity offered is far higher than most other investment plan options.

How to Invest in Equity Mutual Funds

The popularity of investing in Equity Mutual Funds is rising at an exponential rate. Investing and accessing your investments has been made much more convenient by the easy internet terms on the mobiles.

It takes only a few minutes to start investing in mutual funds.

Presently in India, investing in equity mutual funds is as simple as:

Step 1: Get registered with WealthBucket. (This is free and the validity is lifetime) 

Step 2: Upload your KYC documents on the portal, to apply for KYC. No need to make tours of various AMCs offices.

Step 3: Invest and watch your money grow on your personal dashboard at the WealthBucket site. Here, you can track, buy, sell, and manage all your investments in the highly intuitive app-based interface. In a few clicks only.

 P.S.: You may also discuss your investment goals, risk-taking ability, investable amount, etc. with our team of market analysts and investment experts.

Lump Sum or SIP: Which way to invest?

You can start investing in mutual funds in 2 ways. With SIP (Systematic Income Plan) or LumpSum. In the case of investing a Lump Sum amount, the investor puts the entire amount at one go. In the case of investing via SIP, you need to invest a specific amount of money at regular intervals.

For investing in a Lump Sum, timing the market can give good returns if done correctly. Whereas, with SIP, the risks are mitigated because the investment is spread across time. And the cost of purchase and the rupee is averaged out. Further, SIP provides flexibility and affordability of investment and helps in maintaining investment discipline. Since lesser units are bought when the prices are high and more units are bought when the prices are lower. And the fluctuations in the market are avoided.

Besides, not everyone can afford to invest a big amount, every time. Hence, SIPs are the preferred mode of investment. However, both these methods have their advantages and disadvantages.

How to Choose Best Equity Mutual Funds

Performance of the Fund

Most investments are done on the basis of their performance over some time. Additionally, they should be assessed in comparison with their benchmark over 4-5 years. And check a smaller duration and see if the fund has been beating the benchmark or not.

Fund Size (AUM)

Investors should choose the fund whose Asset under Management (AUM) or Fund Size is neither too big nor too small in size. A lower AUM means there have been few investors so far, and it may be risky. While a good AUM implies the plan has already reached or is near its a high point, and has low chances of growth. While there is no perfect amount of size of the fund, it varies according to the sector and capitalization. So you will have to look for similar schemes for comparison.

Risk-Return Ratios

Five main indicators help us analyze the investment risks of stocks, bonds, and Mutual Fund Portfolios. These are Alpha Ratio, Beta, Sharpe, R-squared, and the Standard Deviation. These statistical measures predict risk, volatility, and returns.

Fund Manager

The performance of a Mutual Fund Plan is in the hands or wisdom of the Fund Manager. The person authorized to make vital decisions about buying or selling from the fund’s portfolio. So, the track record of the funds managed by the particular fund manager must be studied, especially during the tough market phases. Going for a fund manager who has been consistent over his career and who has experience of managing a similar kind of fund, should be ideally preferred.

Expenses

While calculating returns from the scheme, it is advisable to check the expenses involved. Especially, the Expense Ratio, which eats into the profits made on the investments. Ideally, industry experts advise choosing schemes that have an expense ratio of up to 1.5% only.

Exit Load

If there is a chance that you may need the money before the end of the investment horizon, you must check Exit Load. This is, generally, charged if you exit within 365 days. However, when you keep invested for more than this period, you will not be charged any Exit Load. Therefore, try to retain the schemes with the least Exit Load requirement, if there is a chance that you may need to withdraw earlier.

Frequently Asked Questions

What are Equity Mutual Funds?
An Equity Mutual Fund invests, primarily, in the equity shares of the companies in different proportions as per their investment mandate. As per SEBI, these have to invest at least 65% of the corpus collected, into the mandated stocks or equities.
How to invest in Equity Funds?
With WealthBucket, the process of investing in Equity Mutual Funds is as simple as 1-2-3. You just need to:
1) Fill-up the form above, with your name, mobile number, and mail-ID. Your account is created
2) Upload your PAN, Aadhaar, and Cancelled Cheque pictures. And your KYC is complete. This is required only for the first time investment with WealthBucket.
3) Select the fund most suitable and start investing.
What is the cost of investing in Equity Funds?
Nil. The cost of investing in Equity Mutual Funds is zero. However, most of the Mutual Funds charge some expense ratio. These cover the expenses of the AMC, the fund manager, analyst’s team, etc. No expense ratio is there for passive or Index Funds, as they are not actively managed by the AMC/fund manager.
What are the documents required?
To start investing in Equity Mutual Funds, you just need to upload pictures of your PAN card, ID proof and a cancelled cheque on WealthBucket.
What is the minimum amount required?
You can start an SIP investment in Equity Mutual Funds with as low as Rs.500. There is no maximum limit for Equity Fund investment.
What is SIP investment?
SIP or Systematic Investment Plan is a mode of investing. It is not an investment plan. Under this, you can invest a specific amount monthly into your selected Equity Mutual Fund plan. It brings a disciplined approach to investing. It helps to create wealth in the long-term (using the power of compounding). And it also reduces the impact of market volatility because the amount is invested monthly.
How do I pay for my SIP instalment?
You will need to add SIP biller, in case you are making payment through Net Banking. This authorizes us to ask your bank to transfer the SIP amount, at intervals set by you. That is all you need to do. The SIP amount will get deducted automatically from your bank and invested into your chosen fund, immediately.
How do I make offline SIP payments?
Please download the E-Mandate Form from our portal, immediately after you have invested in a fund. Complete, sign and upload it on this portal to authorize the bank to transfer this amount to the selected fund.
Do I need to provide E-Mandate for all my investments?
No, as with WealthBucket, this is a one-time process. Because we are registered distributors with BSE and SEBI, and are authorised to deal across India.
SIP or Lump Sum, which is better?
These are 2 different modes of investments. So, in effect, there is no point of comparison between them. SIP, as mentioned in the above answer, is a mode that makes regular investments over a long period. This is the amount you can spare out of your monthly budget for long-term goals. Whereas, anyone will be able to invest a lump sum only when they have a large amount. Therefore, this cannot be done regularly.
Still, SIP is a much better way to invest than wait to collect a larger amount before investing.
How to measure Risk Appetite?

You can check which Equity Mutual Fund is most suitable for you with the help of the below table on risk profile:

Risk Profile Type of Investor
High Risk Returns would be higher along with a high risk of losing the capital invested.
Moderately High Risk Risk of losing the capital invested is somewhat on the higher side, so are the possibilities of returns.
Moderate Risk For those willing to take moderate risk for moderate returns.
Moderately Low Risk Lower returns with lower risk.
Low Risk Potential to earn returns is quite low. As the risks involved are low too.
Do I need to visit CAMS-KRA office?
Not unless you invest more than Rs.50,000 in a single AMC, in a single year. Up to this limit, you can simply upload your KYC documents on WealthBucket and keep investing. Once you cross this threshold, you will be required to visit the CAMS office personally.
How are Equity Fund taxed?
The mutual fund investments are taxed according to the investment period. Those investments that are redeemed within 1-year are considered Short-term and those sold back any time after 1-year are considered “Long-term investments”.
1. Long Term Capital Gains tax :
Long Term Capital Gains tax or LTCG is applicable at the time of redemption of the mutual fund units. If the gain is higher than Rs.1 lakh, it will be taxed at 10%. LTCG below Rs.1 lakh is exempt from tax.
2. Short Term Capital Gain:
If the mutual fund units are sold within 1-year of holding, then Short Term Capital Gains (STCG) tax will apply. Currently, it is charged at 15%.
How to choose Best Equity Funds?
When you are looking to invest in Mutual Funds, it is advisable to invest with specific, concrete, financial goals in mind.
You should choose the option that is doing well, even if the market is in Bear mode. With this, you will know the maximum damage that can be caused to the fund.
Also, consistency is very important. Even more than the point-to-point returns. Ideally, you should look at the fund’s performance of the last 5-years.
What common mistakes people make while investing?
• Selecting a fund solely on it’s past performance. Other factors need to be considered before buying into a fund.
• Investing in advice, tips, and hunches received from non-experts.
• Diversifying more than you need. Investing in more than 3-5 schemes will mean losing the benefits of diversification.
• Panicking over market fluctuations. Constant changes, withdrawals, or switching over would adversely affect the returns.
• Withdrawing too early. Having a short-term investment horizon would not bring the benefits of investing in Equity Mutual Funds.
What are the benefits of investing in Equity Mutual Funds?
The advantages of investing in an Equity Mutual Fund are:
• Professional Management – managed by a team of expert market analysts and the fund manager, whose job it is that the investment earns good returns.
• Transparency – AMCs are strictly monitored by SEBI. And SEBI requires them to mention clearly the expenses involved, the portfolio contents, etc.
• Diversification – Equity funds give the option to invest in a variety of companies and with different mandates.
• Potential of High Returns – Mutual funds, have historically, provided better returns than all other traditional investment schemes available in the market.
• Low Costs – Costs are spread over the investment duration. Hence, reduce with time.
• Tax benefits – You can choose to invest to save tax. And, at the same time, earn good returns.
• Flexibility – You can easily switch over to another fund by the same AMC, or withdraw and invest in some other house.
• Liquidity – Unlike insurance, PPF, etc. that have a lock-in period of over 10-15 years, Equity Mutual Funds are withdrawn within 2-4 days.
• Choice of schemes – There are thousands of plans available, having a different investment mandate.
What is NAV?
NAV or Net Asset Value is the market value of a fund’s assets minus the value of it’s liabilities. The per-unit NAV is the net asset value of that specific Plan divided by the number of units outstanding on the Valuation Date.
How to monitor the performance of the fund I invested in?
Check for:
• Changes in the management team.
• It merges into another fund.
• Other changes in the management, investment mandate, etc.
• It’s performance slips as opposed to similar funds.
• Increase in expense ratio.
• The beta ratio shoots up.
• The ratings of the fund go low.
What is a Switch?
Some Equity Mutual Funds provide the investor with an option to shift the investment from one plan to another within that AMC. A switching fee may be levied. It allows the Investor to change the allocation among different plans to best meet his changed investment needs, risk profile or changing circumstance during his lifetime.
Is there any minimum lock-in period?
There is no lock-in period for most open-ended funds. But, for tax saving equity funds (ELSS), a minimum lock-in period is there. For now, it is a period of 3-years.
What the different trademark classes?

The Trademark Registry has classified goods and services under 45 classes. The class/classes of the goods/services should be mentioned accurately in an application. The trademark would be registered under those classes only. When doing trademark search you should only be worried if a trademark with a similar name exists in the same class. For example, if you are an IT provider by name of ComSys, you will get your trademark if someone else has registered the same trademark in some other class.

Risk Profile Type of Investor
High Risk Returns would be higher along with a high risk of losing the capital invested.
Moderately High Risk Risk of losing the capital invested is somewhat on the higher side, so are the possibilities of returns.
Moderate Risk For those willing to take moderate risk for moderate returns.
Moderately Low Risk Lower returns with lower risk.
Low Risk Potential to earn returns is quite low. As the risks involved are low too.