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Equity funds are popular for long-term growth, investing mainly in publicly listed stocks. Whether new or experienced, understanding their workings, risks, and types is key to smart investing. This guide covers essential concepts and how equity funds fit into your financial plan.
Equity funds are a type of mutual fund that invests predominantly in equity shares of various companies. Fund managers pool money from multiple investors and deploy it into a diversified portfolio of stocks based on the fund's objective.
These funds are professionally managed and cater to different risk-return appetites.
Equity funds in India come in various types, each with distinct investment focuses and risk profiles:
Type |
Description |
|---|---|
Large-Cap Funds |
Invest in top 100 companies by market capitalisation; relatively stable |
Mid-Cap Funds |
Focus on 101st to 250th ranked companies; higher growth, higher risk |
Small-Cap Funds |
Invest in companies ranked 251st and below; high risk, potential for high returns |
Multi-Cap Funds |
Diversified across large, mid, and small-cap companies |
ELSS (Equity-Linked Saving Scheme) |
Offers tax benefits under Section 80C; 3-year lock-in |
Sectoral/Thematic Funds |
Invest in specific sectors like banking, pharma, IT, etc. |
Focused Equity Funds |
Invest in a limited number of high-conviction stocks |
Investors buy units of the mutual fund scheme, and in return, the fund manager allocates capital to various stocks. The Net Asset Value (NAV) of the fund reflects the market value of the underlying holdings.
NAV = (Total Assets – Total Liabilities) / Number of Units Outstanding
The NAV changes daily based on the movement in the prices of the portfolio stocks.
Equity funds are ideal for investors who:
Have a medium to long-term investment horizon (3–5 years or more)
Want to participate in stock market growth without direct stock picking
Can tolerate short-term market fluctuations
Are looking to diversify their investment portfolio
Equity funds are not ideal for very conservative investors or those seeking capital protection in the short term.
Equity funds offer several advantages for investors, including:
Benefit |
Explanation |
|---|---|
Diversification |
Reduces risk by investing across sectors and companies |
Professional Management |
Managed by experts using research and data |
Liquidity |
Open-ended funds can be redeemed at any time |
SIP Option |
Allows disciplined investing with small amounts regularly |
Tax Efficiency |
ELSS funds provide tax deductions under Section 80C |
Mitigating risk involves proper fund selection and aligning investments with your goals.
Risk |
Description |
|---|---|
Market Risk |
Returns depend on overall market conditions |
Volatility |
NAV can fluctuate in the short term due to stock price changes |
Fund Manager Risk |
Performance may depend on the manager’s skill and decisions |
Concentration Risk |
Sectoral and focused funds may suffer if specific segments underperform |
Consider the Following Factors:
Investment objective – growth, income, or tax saving
Risk tolerance – based on your financial goals and age
Past performance – evaluate 3- and 5-year returns
Fund manager's track record – consistent performers
Expense ratio – lower costs improve net returns
Exit load and lock-in period – especially relevant for short-term investors
Understanding tax implications on equity fund investments is crucial. Key points include:
Short-Term Capital Gains (STCG): 15% if units sold within 1 year
Long-Term Capital Gains (LTCG): 10% on gains exceeding ₹1 Lakh in a financial year after 1 year holding
It’s important to separate myths from facts when investing in equity funds. Common misconceptions include:
Myth |
Reality |
|---|---|
Equity funds are only for experts |
Anyone can invest through SIPs or with advisor help |
All equity funds are risky |
Risk varies by fund type (large-cap vs small-cap) |
Past returns guarantee future gains |
Returns fluctuate and depend on market cycles |
To start investing in equity funds, ensure the following steps are completed:
Choose a registered mutual fund distributor or platform (like Bajaj Markets)
Complete KYC verification
Select fund type and scheme based on your goals
Start investing via SIP or lump sum
Monitor and review performance periodically
Equity funds offer a convenient and effective way to participate in the wealth creation potential of stock markets. However, it’s essential to understand their working, associated risks, and the importance of aligning your fund selection with your financial goals. With the right knowledge and planning, equity funds can serve as a powerful tool for long-term financial growth.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
They carry risk, but investing via SIPs and choosing large-cap or diversified funds can reduce volatility.
Yes, unless the fund has a lock-in period (like ELSS), most open-ended equity funds offer liquidity on any business day.
You can start with as little as ₹100 per month via SIP in most mutual funds.
Ideally, you should stay invested for at least 3 to 5 years to ride out market volatility and earn meaningful returns.
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