Equity Funds generate significant returns by investing principally in stocks across all market capitalizations. However, the returns are directly proportional to the market volatility. Their counterparts, debt and hybrid funds give significantly low returns, as compared to equity funds.
Equity Funds contribute at least 90% of their assets in various organizations' large-cap, mid-cap, or small-cap keeping in view investment objectives. The remaining sum may be invested into cash and cash-like instruments to take care of risk and return factors. The fund manager settles on purchasing or offering opportunities to exploit the changing business sector developments and tries to procure the most extreme returns.
One’s choice to put resources into equity funds should be in a state of harmony with one’s risk profile, time-horizon and goals. Returns on equity not only depends on market behaviour but a longer duration of investment generally gives better returns.
Diversification is a critical part of managing one’s portfolio. To achieve that goal, there are different sub-categories of Equity Mutual Funds to choose from.
Market Capitalisation based Mutual funds are categorised as follows:
Sector Mutual Funds are equity schemes that invest in a specific sector of the economy. Broadly speaking, these sectors are Real Estate Funds, Utilities Funds, Natural Resource Funds, Technology Funds, Financial Funds, communication Funds, Healthcare Funds and Precious metal Funds.
These funds allow investors to participate and reap the benefits happening at different sectors of economy at different point of time.
Ideas based on certain themes along with sectoral principals are the thought behind the investment in Thematic Mutual Funds. For instance, an infrastructure theme fund will invest in cement, power, steel, among other sectors.
Solution Based Mutual Funds primarily are customised for investors with a specific objective in mind i.e. Retirement, Child-Education etc. these funds generally have long duration of investment tenure. Investments in such funds are locked in for a particular period of time.
Investors must attempt to diversify their funds across different asset classes like debt, real estate, equity, gold, etc. As the name suggests, an Index Mutual Fund puts resources into stocks that follow indices like NSE Nifty 50, BSE Sensex, and so on and so forth. These are passively managed funds and assets are allocated into stocks as present in the underlying index in a similar amount and don’t change the portfolio composition, returns are proportional thereof. However, tracking error risk is involved scarily.
Investors search for opportunities to help them create better returns on their investments and also save taxes. ELSS (Equity Linked Savings Scheme) are Funds which offer tax exceptions of up to ₹ 45,000 under Section 80C of the Income Tax Act under Old-Tax regime. ELSS funds invest their corpus into equity or equity-related instruments, hence they are able to give better returns than other tax-saving instruments available for investments in the market.
Global Based Mutual funds are those funds, which prevalently put resources into the international indices, equity stocks, equity-related instruments, and debt securities of organizations/elements listed on stock exchanges outside of India. Generally, these mutual fund schemes essentially invest in overseas based financial instruments like mutual funds and hence they are referred to as fund of funds.
To come under equity-based Tax liability the funds chosen by one should have their investment minimum of 65% in India-based equity and equity-related instrument
Short-Term Capital Gain ( STCG ) – If the capital gain is booked before the completion of 365 days then the said capital gain is taxed at flat 15%.
Long Term Capital Gain ( LTCG ) – if the capital gain is booked after the completion of 365 days of investment tenure then the said capital gain is taxed at 10% with first one lakh of LTCG exempted.