There are varieties of mutual funds available in the market. Among all that equity funds are the most popular. But, in the same one, several different types of equity funds remain.

Here, in this post, we will know the definition of equity mutual fund in simple language and also discuss the 7 most popular types of it.

What is an Equity Mutual Fund?

In simple language equity fund is one that, invests a higher allocation of its portfolio in the companies which are publically listed on the stock exchange and all that different mutual fund schemes are created for different purposes.

As per the SEBI (Security and Exchange Board of India) rules, equity mutual funds must invest at least 65% of their portfolio in equity or equity-related instruments.

7 Most Famous Types of Equity Funds

The following section will discuss different types of Equity Mutual Funds.

Large Cap Mutual Funds

Large-cap funds are those, which allocate at least 80% of the portfolio to large-cap companies.

Now, some of you have the question, How to identify large-cap companies?

So, the answer is, As per the SEBI guideline,

Those companies with a market capitalization above 20,000 crores are known as large-cap companies.

or

Based on the market capitalization top 100 rank companies in India are known as large-cap companies.

Companies like TCS, Reliance, and HDFC Bank are examples of large-cap companies in India.

Among all types of equity funds, Large cap funds are suitable for investors who are beginners in the market or conservative investors.

Large-cap mutual funds are stable (low volatile during unfavorable market circumstances) and consistent return providers.

As per the market experts and various AMCs (Asset Management Companies), the investment horizon in the large-cap fund should be a minimum of 5 years to get average industry returns (Though it may vary as per the market situation, as per my personal experience).

Mid-cap Mutual Funds

Mid-cap funds are those, which allocate at least 65% of the portfolio to mid-cap companies.

Now, some of you have the question, How to identify mid-cap companies?

So, the answer is, As per the SEBI guideline,

Those companies with a market capitalization higher than 5000 crores but low than 20,000 crores are known as mid-cap companies.

or

Based on the market capitalization companies ranks from 101 to 250 in India known as mid-cap companies.

Companies like Tata Consumer, SRF, and IRCTC are examples of mid-cap companies in India.

Among all types of equity funds, mid-cap funds are at higher risk than large-cap funds. Due to that mid-cap mutual funds have the potential to generate higher returns than large-cap funds.

While mid-cap funds are less risker than small-cap funds. Hence, it can generate lower returns than small-cap funds.

Mid-cap mutual funds are suitable for moderate risk-taker investors. Who’s investment horizon is at least 8 to 10 years.

Small-cap Mutual Funds

Small-cap funds are those, which allocate at least 65% of the portfolio to small-cap companies.

Now, some of you have the question, How to identify small-cap companies?

So, the answer is, As per the SEBI guideline,

Those companies with a market capitalization of less than 5000 are known as small-cap companies.

or

Based on the market capitalization companies ranks below 251 in India known as small-cap companies.

Companies like Affle India, Bajaj Consumer, and Deepak Nitrite are examples of small-cap companies in India.

Among all types of equity funds, small-cap funds are at higher risk than large-cap funds and mid-cap funds.

Due to that small-cap funds have the potential to generate higher returns than large-cap and mid-cap funds in long run.

Small-cap mutual funds are suitable for aggressive risk-taker investors.

The ideal investment period for small-cap funds could be at least 10 years.

Multi-cap Mutual Funds

Multi-cap funds are those, which allocate at least 65% of the portfolio between large-cap, mid-cap, and small-cap companies.

There is no rules or condition that, how much to allocate between that all.

Here, the fund manager allocates the proportion of the portfolio between large-cap, mid-cap, and small-cap as per the market situation.

Among all types of equity funds, these funds are the most diversified mutual funds.

Just because large-cap companies provide stability. While mid-cap and small-cap companies provide growth to portfolios.

Multi-cap mutual funds are suitable for aggressive investors. Though, to get a good return from these funds it’s advisable to stay invested for a minimum of 7 to 10 years.

Sectorial Mutual Funds

These types of equity funds invest only in that stocks which blogs to the same sector. Such as the pharma sector, IT sector, consumer durable Sector, etc.

It is mandatory for this kind of fund to invest at least 80% of its portfolio in stocks from the same sector.

This kind of equity fund is highly risky. But, have the potential to give a higher return as well.

Sectorial Mutual funds are suitable for high-risk-taking investors.

ELSS (Equity Link Saving Scheme) Mutual Funds

In the ELSS mutual funds, it is necessary to invest at least 80% of the portfolio in equity without any restriction of market cap.

This mutual fund scheme comes with a minimum lock-in period of 3 years. So, investors can not redeem invested amount before 3 years of their investment.

Among all types of equity funds, ELSS only provides the benefit of a tax deduction on the investment up to 1.5 lakh in the year under section 80C.

This is the only investment scheme, which has the shortest lock-in period among all tax-saving options available in India.

Also, provide a better return than the traditional PPF (Public Provident Fund) scheme.

This mutual fund scheme is suitable for investors, who have the potential to stay invested for 5 to 7 years.

Also Read: 6 Risk-Free investment option in India

Focused Mutual Funds

In this kind of mutual fund, fund managers must have to invest at least 65% of their portfolio in equity or equity-related instruments.

While the remaining 35% can be invested in debt or the money market.

Among all types of equity funds, Focused funds have a very concentrated portfolio. Because focused funds contain only 20 to 30 stocks in the portfolio.

The fund manager has the right to select stocks from any market cap-related stock.

Focused funds are suitable for aggressive investors.

Tax on Different Types of Equity Funds

There is short term and long term capital gain tax applicable on the equity mutual funds.

If your investment period is less than 12 months and if you are earning any profit you are in the category of STCG (Short Term Capital Gain).

The tax which is applicable in STCG is 15% on your profit.

While

Your investment period is more than 12 month than LTCG (Long Term Capital Gain) is applicable.

In the LTCG the capital gain is tax free up to 1 lakh means in the single financial year if your profit from mutual fund is less than 1 lakh you do not need to pay any tax.

However, if your capital gain is more than 1 lakh, 10% tax is applicable on the profit amount over 1 lakh.

There are also other types of equity funds, such as value funds, contra funds, and Flexicap funds. But that funds are somewhat similar to the funds which are mentioned above in detail in this article.

To get more detail about all this please visit Mutual Fund Sahi hai

Conclusion

So, In this post, we have taken the knowledge about the 7 most popular types of equity funds in detail. These equity funds are Large-cap funds, Mid-cap funds, Small-cap funds, Multi-cap funds, Sectorial funds, ELSS funds, and Focused Funds.

Frequently Ask Questions (FAQ)