Mutual fund schemes in India are broadly classified in the following 5 groups –
Equity mutual funds – Invests in equity shares and equity oriented securities.
Debt mutual funds – Invests in debt, Government securities and money market instruments.
Hybrid funds – Invests both in equities and debt and also in REITs and Golds, depending upon the category of the hybrid fund.
Solution oriented schemes – These consist of retirement plans and children plans.
Other Schemes – These schemes consists of ETF, Index funds and fund-of-funds (both, domestic and international FOFs)
Equity mutual funds are mutual fund schemes which invest primarily in equity shares and equity related securities. Equity fund is among the riskiest investments across all mutual fund schemes in India. But at the same time, historical data shows that equity is the best performing asset class in the long term – for example, Rs 1 Lakh invested in CNX NIFTY 10 years back, would have grown to Rs 3.77 Lakhs. CNX NIFTY has given over 14% return in the last 10 years (source: www.advisorkhoj.com – data as on 12/01/2022).
The risk profile of equity mutual funds range from high to very high; investors should have high to very risk appetite for investing in equity funds. Equity funds can be classified into several sub-categories depending on their investment characteristics and market capitalization.
Large cap funds – Invests in top 100 companies based on market capitalization.
Large and midcap funds – Invests in both, large and midcap stocks with minimum mandate of 35% in each.
Multi-cap funds – Invests across large, mid and small cap companies.
Midcap funds – Invests in 101st to 250th companies based on market capitalization.
Small cap funds – Invests in 251st companies and beyond based on market capitalization.
Flexi-cap funds – Invests across sectors and market capitalization without any maximum or minimum allocation limits.
ELSS – Known as tax saving funds, ELSS is a diversified equity which offers tax rebate on investment of Rs 150,000 under section 80C of the Income Tax act 1961.
Further classifications of equity fund is based on investment strategies or investment styles -
Focused funds – Can invest in maximum 30 no. of companies.
Value funds – Follows a ‘value investment strategy’.
Dividend yield funds – Invests in shares of companies with high dividend yield.
Sectoral/ Thematic funds – Invests in a particular sector (example – banking, healthcare, IT etc.) Themes like consumption, energy, MNC and PSU etc.
While most equity mutual funds are diversified in nature, i.e. they invest across different industry sectors, some equity funds may invest in particular themes or sectors – these are classified as thematic or sector funds. Among all equity funds, sectoral/thematic funds carry sector risks and are considered to be the most risky among all equity fund categories. However, if these investments are planned well in terms of entry and exit, they can give very high returns. Irrespective of which category of mutual fund schemes in India you invest in, you should always consider your risk taking appetite before investing in any fund and particularly for equity mutual funds you should be ready for taking high risk and have a long investment horizon.
https://www.miraeassetmf.co.in/mutual-fund-scheme/equity-fund