Short Description :
Introduction
According to SEBI Mutual Fund Regulations, an equity mutual fund in the Indian context is a mutual fund where 65% of the total asset allocation is invested in equities or equity-related tools. You invest in equity mutual funds when you purchase shares of a company. A company may raise its funds by selling off its shares/ stakes/ equity to interested individuals or originations. When you buy equity in that company, you become a shareholder in that company and enjoy partial ownership of the same—you gain when the company earns profit; you lose if the company’s share prices drop.
Equity mutual fund: types
1. Market capitalisation:
- Large-cap – invests in stocks of top 100 companies
- Mid-cap – invests in stocks of the next 150 companies
- Small-cap – invests in stocks other than the first 250 companies
- Multi-cap – invests in stocks across all market capitalisation
2. Sector and themes
3. Investment style: This is further categorised as
- Actively-managed funds – the fund-manager compiles your investment portfolio
- Passively-managed funds – your equity portfolio is composed in line with a specific index, like Sensex.
Merits of equity mutual funds
- Expert-managed investment: Professionals carry out your trading activities. You may take the help of a fund manager, who is usually well-versed in the market scenario while dealing with equity mutual funds.
- Alleviates risk: Fund managers have to follow AMC’s rules, especially for mitigating risks. Also, diversification minimises risk.
- Small ticket size: If you invest via SIP, you can start investing even with a minimum of Rs.500.
- Offers diversification: Investment is diversified across different stocks and sectors of the market and not over-exposed to a single stock or sector.
- Offers convenience: You are only required to be KYC compliant to invest in equity mutual funds. Moreover, you can own a portfolio by simply investing in a single equity mutual fund of your liking.
- Properly regulated: Standard transparency is maintained in the dealings of equity mutual funds as SEBI closely monitors these.
- Systematic investment: If you invest via SIP, a fixed amount will be deducted from your linked bank account on a particular date each month, without you even having to worry about it.
Equity share prices:
- Internal factors: The company, company management, company earnings
- External factors: Political circumstances, domestic and global economic factors, inflation, interest rate, industrial milieu
- Market point-of-view: Reactions of the market participants as far as a stock’s future growth is concerned
- Diversification of your investment portfolio
- Equity is always a long-term investment
- Systematic investment through SIP instead of a lump sum to leverage rupee cost averaging.
The Modus operandi
Imagine putting money in a fund which is created by collating money from different investors. This money is then utilised to buy stocks of companies. You know you have started your equity mutual fund investment journey. A significant percentage of your invested amount is put into buying shares of various organisations in equity mutual funds. Based on the market conditions, the fund’s objective and investment style, the asset allocation can be made on any equity mutual fund category. Based on what the fund manager deems fit, the rest of the fund can now be invested in debt or other money market instruments.
