Investment Guide To Equity Funds

February 25, 2021 by No Comments

Equity mutual funds try producing high returns by investing in the stocks of companies across all market capitalizations. Equity mutual funds are the riskiest class of mutual funds, and thus, they have the ability to provide better returns than debt and hybrid funds. The success of the company plays a major role in determining the investors’ returns.

Investment Guide To Equity Funds

How Does It Work?

Equity mutual funds invest at least 60 percent of their assets in equity shares of various companies in appropriate proportions. The asset allocation would be in accordance with the investment objective. The asset allocation can be rendered solely in stocks of large-cap, mid-cap, or small-cap firms, depending on the market conditions.

The investment style can be value-oriented or growth-oriented. After allocating a large portion into the equity segment, the remaining sum can go into debt and money market instruments. This is to take care of sudden redemption requests as well as bring down the risk level to some degree.

Who Should Invest?

Your decision to invest in equity funds must be in line with your risk profile, investment horizon, and priorities. Generally, if you have a long-term target then it is easier to invest in equity funds. It would also give the fund much-needed time to tackle market volatility.

If you are an aspiring investor who wants to have exposure to the stock market, then large-cap equity funds may be the right choice. These funds invest in equity shares of the top-performing companies whose risk level is low. The well-established companies have historically delivered stable returns over a long period.

If you are well-versed with the market pulse and willing to take calculated risks, then you can think about investing in diversified equity funds. These invest in shares of companies across all market capitalizations. These funds have an outstanding mix of high returns at lower risk as opposed to equity funds that only invest in small-cap/mid-caps.

The regular buying and sale of equity shares also affect the cost ratio of equity funds. The Securities and Exchange Board of India (SEBI) has capped the expense ratio at 2.5 percent for equity funds. A lower-cost ratio would translate into higher returns for investors.

So, there you have it. Equity funds are a great way to invest your time and money. We hope that this information is of help to you. Do leave your thoughts below and we will get back to you as soon as possible.

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