Last updated on December 20, 2019
Equity mutual funds are an asset class that promise the potential of high returns over the long term. This is why several appear keen to invest in equity funds to create long-term wealth or build a retirement corpus. However, equity funds come with a relatively higher risk compared to other types of mutual funds such as debt funds. Thus, as an investor, you need to plan carefully and assess the right funds to diversify your investment portfolio.
The article lists six types of equities you may want to consider for an optimum investment portfolio.
- Multi-cap funds
Multi-cap funds are diversified mutual funds. They invest in stocks of companies with varied market capitalisations. Typically, their portfolio could include small-cap, mid-cap and large-cap stocks. Compared to small-cap and mid-cap funds, these are relatively more stable and are a preferred choice of conservative investors.
- Large-cap funds
Large-cap funds invest a significant portion of their corpus in the top 100 listed companies, i.e. well-established players based on their market capitalisation. They are ideal for investors looking for stability as they spread market volatility risks. Usually, an investment horizon of five to seven years is advisable for large-cap mutual fund investments.
- Mid-cap funds
Mid-cap funds invest almost 65 percent of their assets in companies listed between 101 and 250 in terms of their market capitalisation. During a bull phase, these funds can outperform even large-cap funds and could offer substantial returns. However, it is essential to note that these funds come with a slightly higher risk compared to their large-cap counterparts.
- Small-cap funds
Small-cap funds invest in companies under the 250th rank of the underlying benchmark, having smaller market capitalisations. Generally, fund managers of small-cap funds have exposure anywhere between 65 and 90 percent in stocks of small companies. These funds are more volatile compared to mid-caps and large-caps and are preferred by risk-bearing or aggressive investors.
- Value funds
Value funds can be an excellent option when you want to invest in mutual funds. They primarily invest in value stocks that sell at a low price compared to their earnings or other fundamental characteristics. So, fund managers look for stocks that are trading below their actual worth. Thus, when their real value is realised, investors can gain from the increased share prices.
- ELSS funds
One of the best features of mutual fund benefits is its tax-saving option. Equity Linked Savings Scheme or ELSS offers a tax deduction of up to Rs.1.5 lakh under Section 80C. ELSS funds also have the lowest lock-in period of three years.
For a robust investment portfolio, ascertain your personal financial goals and risk tolerance levels before you invest in mutual funds online. Study existing market trends, risks, returns and the performance of the companies you wish to invest in. This can help you enjoy the maximum benefits of mutual funds.