BAJAJ BROKING
Equity funds are a popular investment vehicle for individuals seeking potential capital appreciation by participating in the stock market. These funds pool money from multiple investors to purchase shares of companies, aiming to generate returns through the growth of the invested equities.
An equity fund is a type of mutual fund that primarily invests in stocks (equities). These funds aim for capital appreciation by diversifying investments across various companies, industries, and market capitalisations.
Key Characteristics of Equity Funds:
Managed by fund managers who select and monitor stocks.
Investments spread across multiple stocks to reduce risk.
Aims to generate higher returns compared to traditional savings instruments.
Performance depends on stock market trends.
Investors can invest through lump sum or Systematic Investment Plans (SIP).
Equity funds are also called Growth Funds because they focus on wealth creation over the long term. Bajaj Broking offers a range of equity funds suitable for different risk appetites and investment goals.
Equity mutual funds possess distinct characteristics that make them appealing to a broad spectrum of investors:
Expense ratio refers to the annual charges levied on mutual funds for fund management and operational costs.
SEBI regulations ensure the expense ratio remains within a capped percentage, typically 2.5% for equity funds.
Investments in Equity Linked Savings Scheme (ELSS) funds are eligible for tax deductions of up to ₹1.5 lakh under Section 80C.
ELSS funds have a lock-in period of 3 years.
Equity mutual funds invest across different companies, sectors, and market capitalisations.
Diversification reduces risk while enhancing return potential.
Funds are handled by experienced fund managers who conduct in-depth market research, risk assessment, and portfolio rebalancing.
Investors can choose between:
Open-ended mutual funds allow investors to enter and exit anytime.
Closed-ended mutual funds have a fixed maturity period.
Equity mutual funds can be categorised based on various factors:
Fund managers actively select stocks after research and analysis to outperform the market.
The fund mirrors an index such as Sensex or Nifty 50, with no active stock selection by the manager.
Invest in specific sectors like IT, banking, pharmaceuticals, or theme-based investments like emerging markets.
Invest in a small pool of selected stocks, restricting the number to a maximum of 30 stocks.
Take a contrarian approach, investing in undervalued stocks with the assumption they will appreciate in the long run.
Invest in large, well-established companies with a market capitalisation of ₹20,000 crore & above, offering stability and moderate returns.
Invest in mid-sized companies with a market capitalisation between ₹5,000 crore – ₹20,000 crore, providing higher growth potential but moderate risk.
Invest in small-sized companies with a market capitalisation of less than ₹5,000 crore, offering high growth potential but higher risk.
Maintain a balanced allocation across large, mid, and small-cap stocks to mitigate risk.
Eligible for Section 80C tax benefits (₹1.5 lakh limit) and comes with a 3-year lock-in period. Gains above ₹1 lakh are taxed at 10% (LTCG tax).
Do not offer tax benefits and have no lock-in period. They are taxed as per capital gains rules.
Equity mutual funds primarily invest in stocks, aiming to generate capital appreciation over time. The working of equity funds can be understood as follows:
Investors contribute money to a common pool, which is then managed by a professional fund manager.
The pooled capital is invested in equity shares of various companies across different sectors and market capitalisations.
To manage risk, funds spread investments across multiple stocks rather than focusing on a single company.
The fund manager continuously tracks market conditions, company performances, and economic trends to adjust the portfolio accordingly.
Investors earn returns in two ways:
Investors can enter or exit equity mutual funds depending on the type of fund chosen (open-ended or close-ended).
As equity investments are linked to stock markets, returns fluctuate with market conditions.
Investing in equity funds offers several benefits:
Equity funds are managed by experienced professionals who conduct in-depth research before selecting stocks.
Fund managers make informed investment decisions, reducing the burden on individual investors.
Spreading investments across multiple stocks minimises risk associated with investing in a single company or sector.
Investors benefit from exposure to various industries, reducing overall portfolio volatility.
Investors can choose between:
Most equity funds (especially open-ended funds) allow investors to redeem their units at any time, offering high liquidity.
Equity funds aim for capital appreciation and tend to offer higher returns compared to traditional savings instruments like Fixed Deposits (FDs).
Equity Linked Savings Scheme (ELSS) funds offer tax deductions up to ₹1,50,000 under Section 80C of the Income Tax Act.
While equity funds offer a potential for higher returns, they come with certain risks:
Equity funds are directly linked to stock market performance, and prices fluctuate based on economic conditions, political events, and global factors.
Stocks experience frequent ups and downs, affecting fund NAVs. Short-term investors may face higher risk due to sudden market corrections.
Funds focusing on a particular sector (like IT or banking) may experience losses if that sector underperforms.
Changes in interest rates impact the stock market and, in turn, the performance of equity mutual funds.
In case of economic downturns, investors may struggle to redeem their funds at favourable prices due to reduced market liquidity.
While equity funds generally beat inflation in the long run, short-term investments may not generate inflation-adjusted returns.
Before investing, consider the following:
Equity mutual funds are subject to taxation based on the type of gains realised by investors. The tax treatment varies depending on the holding period and the type of returns received. Below is a detailed breakdown:
Capital gains refer to the profits earned from selling mutual fund units at a price higher than the purchase price. The tax liability on capital gains depends on the holding period:
Below is a table highlighting some of the most popular equity mutual funds in India based on their investment category:
Fund Name | Category | 1-Year Return (%) | 3-Year Return (%) | Expense Ratio (%) | Fund Size (Cr.) |
Bajaj Broking Flexi Cap Fund | Flexi Cap Fund | 18.5% | 23.2% | 0.87% | ₹12,500 |
SBI Bluechip Fund | Large Cap Fund | 15.2% | 20.4% | 1.21% | ₹32,800 |
HDFC Mid-Cap Opportunities Fund | Mid-Cap Fund | 22.1% | 28.9% | 1.13% | ₹26,500 |
ICICI Prudential Small Cap Fund | Small-Cap Fund | 26.7% | 31.5% | 0.98% | ₹9,700 |
Axis ELSS Tax Saver Fund | ELSS (Tax-Saving) | 17.3% | 24.5% | 1.35% | ₹15,300 |
Invests in a mix of large, mid, and small-cap stocks to balance risk and returns.
Focuses on investing in well-established, financially stable companies.
Targets high-growth potential companies in the mid-cap segment.
Invests in emerging companies with high growth potential.
Provides tax-saving benefits under Section 80C along with capital appreciation.
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An equity mutual fund pools investors' money to invest primarily in stocks, aiming for capital appreciation over time.
Equity mutual funds are generally suited for investors with a higher risk tolerance. Those with a low-risk appetite might consider debt funds or balanced funds instead.
Yes, they differ. 'Equity' refers to ownership in stocks, while a 'Systematic Investment Plan' (SIP) is a method of investing a fixed amount regularly in mutual funds, including equity funds.
Yes, equity mutual funds carry higher risk due to market volatility but offer potential for higher returns over the long term.
Equity mutual funds are ideal for investors seeking long-term capital growth and who can tolerate market fluctuations.
Investing directly in equities allows for tailored portfolios but requires significant research and carries higher risk. Mutual funds offer diversification and professional management, potentially reducing risk, making them suitable for those with limited time or expertise.
The TM Brickwood UK Value Fund, launched by Ben Whitmore, invests in undervalued UK companies, aiming to outperform the FTSE All Share benchmark over five years.
Equity funds can offer potential for higher returns through diversification and professional management. However, they carry market risks, and performance can vary. It's essential to align investments with your financial goals and risk tolerance.
The terms "stock" and "equity" are often used interchangeably, both representing ownership in a company. Therefore, neither is better; they refer to the same financial instrument.
Mutual funds, especially diversified ones, are generally considered safer than individual equities due to their spread of investments, reducing the impact of a single underperforming asset. However, all investments carry inherent risks.
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