Investing in Equity funds has become quite popular in India. It is a kind of mutual fund in which you need to invest principally on the sticks which can be managed in both ways, actively as well as passively. Due to its nature, it is popularly known under the name of stock funds too. The idea of mutual funds can be broadly categorized based on the size of the company, the investment pattern of the holdings in the fields of the portfolio as well as the geography.
Definition of Equity Funds:
The idea of an equity mutual fund deals with the idea of investing the assets in the listed securities of the stock market. According to the guidelines of SEBI, an equity fund must invest a minimum of sixty-five percent of its total assets in either equities or in the instruments which are directly related to equity.
It can invest an average balance ranging between 0-35%. This investment can be done either in terms of debt or through money market securities. Although these schemes can be managed both actively and passively, the equity mutual funds in India have usually managed actively.
Classification of Equity Funds:
The equity funds are usually categorized based on the size of the listed company the shares are invested in, the geographical standards on which those investments are focused and the style of investment. Well, under the standards of SEBI, the equity investment can be classified into the following categories:
Based on Capitalization
- The Large Capital Equity Fund: It is open-end equity schemes which invest a minimum of 80% of the total assets in the shares of the large companies. In other words, it can be said that this equity scheme deals with the top 100 companies in the term of the total capitalization value in the market. These funds usually generate low returns if compared to the small capital and mid capital equity funds.
- The Mid Capital Equity Fund: It is an open-end equity scheme which invests about 65% of the total assets in the mid capital stocks. These funds are likely to provide higher returns than the large capital funds. However, they are prone to higher volatility in comparison to another type of funds. These funds are the most suitable type for investors who are ready to take up high-risk investment.
- The Small Capital Equity Fund: These open-ended equity schemes require a minimum of 65% of the total assets in the small-sized stocks. As per the economic condition of India, about 95% percent of companies in India, fall under this Cato. These small capital equity funds are best suited for investors who are ready to take up volatile risks and have a strong motive to earn higher returns.
There are a few types of equity funds which are invested in the security sector of the field of pharmaceutical, Banking, automobile, Information Technology, etc. Such equity funds are known as sectoral funds.