What are Equity Funds?

Funds investing their assets into shares/stocks of different companies across market capitalisation, with an objective of generating higher returns is called Equity Mutual Funds. As regulated by SEBI, equity oriented funds invest at least 65% of the corpus into Equity related instruments and a minimum of 10% into debt. These funds are known for generating better returns as compared to debt funds but riskier due to the dependency on market conditions.

Advantages of investing in Equity Funds

There are certain benefits tagged along the investments made into equity schemes, for the investors willing to place their resources into these funds-

Higher Returns

Equity Mutual Funds are known for accruing higher returns than debt funds. According to historical returns, the investment directed towards equities has always delivered inflation-beating returns. The investment value witnesses in-stant appreciation as and when the price of stocks rise.

Diversified Portfolio

To minimise the intensity of risk, the investments are exposed to different sec-tors across capitalisation. Indulging in a diversified portfolio is always prudent because during bearish market situations, even if some stocks undergo depre-ciation, the stocks outperforming make up for the losses.

Professional Management

Every Mutual fund scheme is monitored by a professional manager, with enough knowledge of the functioning of the market. The fund manager under-goes critical analysis and makes crucial decisions about asset placement to meet the goals of the scheme.

Tax Saving

There are tax saving and non-tax saving equity funds. Equity Linked Savings Schemes (ELSS) are tax saving mutual funds offering tax exemption of up to Rs.1.5 Lakh under Section 80(C) of the Income Tax Act, 1961. The subscribers can also save up to Rs.46,800 in taxes.

Investment costs are low

One can start investing in equity schemes with a nominal cost of Rs.500 per month via Systematic Investment Plan (SIP). Moreover, as updated by the Se-curities & Exchange Board of India (SEBI), the expense ratio of 2.5% applied on equity funds are going to be reduced in the near future.

Income from Dividends

Extra income can be earned by the subscribers in the form of dividends as and when the equity funds deliver the same.

Liquidity and Convenience

Availability of SIP and Lump sum option makes the investment process con-venient. Moreover, it is very easy to redeem units of mutual funds in need. The investors are free to redeem their share of units and the corpus gets credited to the respective bank account within a week.


How to choose the right fund?
  • What is the Financial Goal?
    Always draw a target/goal for which you want to invest. Now, keeping your financial goal in mind, evaluate and choose the best investment option which is perfectly aligned. Equity mutual funds are mainly considered beneficial for long-term investment goals
  • Performance of Funds-
    The overall performance can be judged over a period of time by reviewing certain factors such as historical returns and CRISIL Rank of the fund. Historical Returns can help investors decide whether a scheme is worth investing in or not. Equity Funds are recorded as the highest returns delivering category of Mutual Funds
  • Risks Involved-
    Mutual funds are subject to market risks. The intensity of risk involvement & the risk appetite of the investor defines the investment stance. Equity Mutual Funds are considered riskier than other fund types. However, Diversified Equity Funds are less risky because of the non-focused portfolio
  • What is the Lock-in Period?
    One must consider the lock-in and holding period before planning investments into any of the funds. Equity Funds is not suitable for investors who are looking for short-term investment options because they have a lock-in period of three years
  • Asset Management Company and Fund Managers-
    There are different Asset Management Companies(AMC) with numerous under-lying Mutual Funds. The Fund Managers plan the investment strategy and as-set allocation for every fund. One should always choose a fund which comes under a reliable, well-established fund house and is monitored by a professional Fund Manager
  • What are the Costs Involved?
    Expense Ratio, Entry Load and Exit Load are some of the costs one should be aware of when purchasing and redeeming Mutual Fund units. It is imperative for an investor to review and compare these costs
  • Other Portfolio factors:
    Other factors such as the fund NAV (Net Asset Value), AUM (Assets under Management), CRISIL Rank etc. must be taken into consideration before final-ising the investment strategy
Who should invest in Equity Mutual Funds?

Not all Mutual Fund schemes are suitable for all investors. There are certain parame-ters which define the compatibility of a particular scheme for a particular investor. Likewise, Equity Mutual Funds are suitable for investors:

  • If are looking for long-term investment options i.e, 3 years or more. Long term investments give the fund enough time to perform well
  • You are a new investor and are yet to be familiar with the market and its func-tioning, opt for large cap equity funds. This is because large cap funds invest the assets into stocks/shares of top 100 companies that are well-established organisations with sustainable business plans. These organisations are less affected by market fluctuations and perform consistently during market fluctua-tions accruing stable returns
  • If you are seeking tax-saving investment options but also looking for higher re-turns than traditional savings instruments. ELSS are recommended for such investors as these schemes are exempted from tax deductions under Section 80(C)
  • Investing in diversified Equity funds are also good options for individuals with a good knowledge of the intricacies of the market functions. These Funds invest in the shares of different companies across market capitalisation to give the fund portfolio a fair chance of getting higher returns under less risks as com-pared to small/mid cap equity funds