Equity Funds
These funds invest in equities and depending on the type of equities these funds have been further classified as,
1. Growth funds
2. Value funds
3. Dividend Yield funds
4. Large Cap funds
5. Mid Cap or Small Cap funds
6. Specialty funds or Sector funds
7. Diversified Equity funds
8. Equity Index funds.
Certain equity funds have tax benefit under section 80C of the Income-tax Act, 1961 and have a lock in period of three years. These are Equity Linked Savings Schemes popularly called as ELSS. These funds have higher risk, but potential for higher returns.
Growth funds
These funds invest in the growth stocks, which ie stocks that exhibit and promise above average earnings growth. Managers using the growth style select stocks which are normally quite high profile. Such stocks being high growth are more visible and also have high investor interest. Due to this, the stocks may appear to be costly on historical valuation parameters.
However, the high valuation is justified by the expected high future growth.
Value funds
As the name suggests, value funds buy value stocks as we discussed earlier. Such stocks are generally out of favour with most investors in the market and hence the market price is low as compared to the inherent value of the business. The value style managers generally hold the stocks for longer time horizon than their growth style counter parts.
Dividend yield funds
One of the valuation parameters a value style fund manager looks for is high dividend yield. However, there is a category of funds that consider this one parameter as the most important factor to select stocks. As compared to other parameters of considering value, dividend is believed to be more reliable as it involves cash movement from the company account to the
share holder account and hence there is no room for any subjectivity.
Large cap funds / Mid cap funds / Small cap funds
Equity mutual funds can be classified based on the size of companies invested in. In capital market terms, the size of the companies is measured in terms of its market capitalisation, which is the product of number of outstanding shares and the market price. It also denotes the price the market is willing to pay to buy the entire company. Larger the market capitalisation, larger the company. In popular usage, the word market capitalisation is referred to as “cap”.
Fund investing in stocks of large companies are called Large Cap Funds and those investing in stocks of mid sized companies are called Small Cap Funds.
Specialty / sector funds
Certain funds invest in a narrow segment of the overall market. The belief here is that stocks in similar industry move together, as companies in such sectors are similarly impacted due to some factors. There are funds that invest in stocks of only one industry, e.g. Pharma Funds, FMCG Funds or broader sectors, e.g. Services Sector Fund or Infrastructure Fund. Similarly, there could be thematic or speciality funds that invest based on some common theme, e.g. PSU Funds or MNC Funds.
These funds are more suitable for aggressive and savvy investors.
Diversified equity funds
These funds invest in stocks from across the market irrespective of size, sector or style. The fund manager has a greater freedom to pick up stocks from a wider selection. Most advisors advise investors to have diversified funds as core part of their portfolio. These funds, being diversified in nature, are considered to be less risky than thematic or sector funds.
Index funds
In all the above categories of funds, the fund manager plays an active role in carefully selecting stocks to build the portfolio.
Growth funds
These funds invest in the growth stocks, which ie stocks that exhibit and promise above average earnings growth. Managers using the growth style select stocks which are normally quite high profile. Such stocks being high growth are more visible and also have high investor interest. Due to this, the stocks may appear to be costly on historical valuation parameters.
However, the high valuation is justified by the expected high future growth.
Value funds
As the name suggests, value funds buy value stocks as we discussed earlier. Such stocks are generally out of favour with most investors in the market and hence the market price is low as compared to the inherent value of the business. The value style managers generally hold the stocks for longer time horizon than their growth style counter parts.
Dividend yield funds
One of the valuation parameters a value style fund manager looks for is high dividend yield. However, there is a category of funds that consider this one parameter as the most important factor to select stocks. As compared to other parameters of considering value, dividend is believed to be more reliable as it involves cash movement from the company account to the
share holder account and hence there is no room for any subjectivity.
Large cap funds / Mid cap funds / Small cap funds
Equity mutual funds can be classified based on the size of companies invested in. In capital market terms, the size of the companies is measured in terms of its market capitalisation, which is the product of number of outstanding shares and the market price. It also denotes the price the market is willing to pay to buy the entire company. Larger the market capitalisation, larger the company. In popular usage, the word market capitalisation is referred to as “cap”.
Fund investing in stocks of large companies are called Large Cap Funds and those investing in stocks of mid sized companies are called Small Cap Funds.
Specialty / sector funds
Certain funds invest in a narrow segment of the overall market. The belief here is that stocks in similar industry move together, as companies in such sectors are similarly impacted due to some factors. There are funds that invest in stocks of only one industry, e.g. Pharma Funds, FMCG Funds or broader sectors, e.g. Services Sector Fund or Infrastructure Fund. Similarly, there could be thematic or speciality funds that invest based on some common theme, e.g. PSU Funds or MNC Funds.
These funds are more suitable for aggressive and savvy investors.
Diversified equity funds
These funds invest in stocks from across the market irrespective of size, sector or style. The fund manager has a greater freedom to pick up stocks from a wider selection. Most advisors advise investors to have diversified funds as core part of their portfolio. These funds, being diversified in nature, are considered to be less risky than thematic or sector funds.
Index funds
In all the above categories of funds, the fund manager plays an active role in carefully selecting stocks to build the portfolio.
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