Everyone wants to grow their money, right? Also, multiplication of your finances does not just happen when you are a millionaire or a billionaire who is investing in businesses, starting companies, or so. You can also multiply your money through investments. Investments are very crucial, especially in terms of your financial stand in the modern world. Yes, you can save money, but saving money does not always multiply like investments. Investment is when your money works for you instead of your working for your money.
But - do you know what the best part about the modern world and investments are? You always have choices. Options would fall over you like rain today when you are looking for investment vehicles. These investment vehicles are FDs, bonds, gold, real estate, and the stock market. Among all of them, the one kind of investment that most of the population can afford and also get good returns on is the stock market. So, coming from the stock market - here we can talk about equity funds.
But, before we get going, let's get the basics straight.
What are Equity Funds?
An equity fund is a kind of mutual fund that primarily invests in equities stocks. In the Indian context, an equity mutual fund scheme always needs to invest at least 65% of the assets in equities according to current SEBI Mutual Fund Regulations. An equity fund might be managed actively or passively. Passively managed index funds and ETFs
Equity mutual funds are classified primarily by firm size, investment style of portfolio holdings, and geography. The market cap of an equity fund determines its size, while the investment style, as represented in the fund's stock holdings, is also used to categorize equity mutual funds.
Equity funds are also classified as domestic (investing only in equities of Indian companies) or international (investing in stocks of overseas companies). These funds might be a wide market, regional, or country specific. Sectoral Funds are specialty equity funds that target business areas such as health care, commodities, and real estate.
Here we can look at some of the best equity mutual funds for 2022.
Best Equity Funds of 2022
- Axis Bluechip Fund
- Mirae Asset Large Cap Fund
- Kotak Emerging Equity Fund
- Axis Small Cap Fund
- SBI Equity Hybrid Fund
- Parag Parikh Long Term Equity Fund
- UTI Flexi Cap Fund
- Axis Midcap Fund
- SBI Small Cap Fund
- Mirae Asset Hybrid Equity Fund
What are the Various Types of Equity Funds?
Equity funds are a large category of mutual funds that have been divided into the following groups based on various criteria:
1) ELSS - This is a type of equity fund that provides tax benefits to investors and is thus more commonly known as a tax-saving mutual fund scheme. Under the Section 80C of the Income Tax Act of 1961, investors can claim a tax deduction of up to Rs.1.5 lakh. ELSS is the only equity fund that provides such tax advantages. Another aspect that distinguishes ELSS from other equity mutual funds is the three-year lock-in period. This means that investors cannot withdraw from the scheme before the end of the time period. ELSS is an expanded equity fund that invests in equities of companies of various market capitalizations and sectors.
2) Index Funds - These equity funds track a benchmark index, such as the Nifty or Sensex. An index fund's portfolio will contain all of the same stocks as the benchmark index in the same proportion. Index funds, because they are passively managed, attempt to replicate the performance of their benchmark index, as opposed to actively managed funds, which strive to outperform their benchmark index.
3) Large, Mid, Small Cap Funds - When it comes to equity funds, there are three sorts based on market capitalization: large cap, mid-size, and small-cap. Large-cap equity funds invest in large-cap firms' stocks, mid-cap funds in mid-cap firms' stocks, and small-cap funds in small-cap firms' stocks. Large-cap companies are ranked 1 to 100 in the market, whereas mid-cap companies are those placed from 101 to 250. Small cap firms are those with a market capitalization of 250 million or less.
4) Sector Funds - Sector funds are mutual funds that invest in firms in a specific sector or industry, such as pharma, technology, FMCG, and so on. Thematic funds, on the other hand, adhere to a specific topic, which can range from foreign exposure to multi-sector, commodities exposure, and so on. The distinction between the sector and thematic funds is that thematic funds cover a broader range of investments than sector funds.
What are the Benefits of Equity Funds?
What is in it for you if you are investing in equity funds, right? Here are the perks of investing in equity funds:
You can grow your capital - Equity funds are one of the strongest financial strategies for helping investors beat inflation. If the price of stocks rises, investors will be able to observe an increase in their capital. Long-term investments in equity funds can help individuals acquire a significant amount of money.
You can expand your portfolio - When investors purchase an equity mutual fund, they have exposure to a variety of stocks. As a result, even if some stocks in the portfolio are underperforming, the investor will benefit from the performance of other stocks. In this approach, equity funds assist investors in diversifying their portfolios.
It is more affordable - Equity mutual fund investments can be made through a Systematic Investment Plan (SIP), which allows investors to invest as little as Rs.500 each month. Each month, this sum is withdrawn from the investor's account. SIPs are one of the greatest strategies to invest in equity funds since they help to mitigate equity market volatility.
You can have tax benefits - Investors can benefit from tax breaks by investing in equity-linked securities, or ELSS, as described in the previous section. By investing in these funds, investors can receive a tax rebate of up to Rs.1.5 lakh on their taxable income, lowering their tax liability.
It is Easy to Liquidate - Equity fund units can be redeemed at any moment at the corresponding NAVs, providing the investor with liquidity. ELSS plans are an exception since investors cannot redeem the units until the lock-in period has expired. When the market falls, equity mutual funds allow investors to buy additional units at lower NAVs (Net Asset Value).
It is managed by professionals - Equity funds are professionally managed by fund managers, who study the market, analyze company performance, and then invest in the best-performing stocks to provide the best returns to the client.
Conclusion
If you are already investing in gold and other assets - you might as well want to choose equity funds to diversify your portfolio.