There are several categories of equity mutual funds. As per the risk-taking capacity of an investor, these mutual funds are segregated into various categories. If one invests wisely over a longer period of time, then one can achieve one’s financial goals very easily. This will also help one in prioritising one’s savings, income and making expenses in a proper way.
Here are seven different kinds of equity mutual funds where one can invest one’s money:
Large Cap Funds
Lap cap funds are the funds which comprise of blue-chips companies having large market capitalization. However, one should know that the criteria of being a large cap varies from company to company, which basically depends on the huge market capitalization.
There are several types of mutual fund schemes available in the market which can be either bought from financial services companies or directly through AMCs. These funds are designed in a way to provide stability and sustainability throughout the investment tenure. The returns are slightly lesser but can easily beat inflation in the long term. These funds, when linked with a financial goal, can help you in achieving them in the long term.
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Mid-Small Cap Funds
These funds provide exceptionally high returns but they are very risky in nature. These funds comprise of stocks of small and emerging companies which ideally provide very good returns in future terms. Generally, as the name suggests, these companies have low market capitalization. If you think that you are aggressive in taking risks, then you can invest in such kind of funds.
These funds are more or less diversified type of funds. As the funds do not dependent on the market capitalization of a company, the fund manager is able to make the best use of opportunities which they can get through market volatility. The scope of doing diversification of the investment widens when you are investing your money in flexi cap funds.
One can minimise one’s risk by taking exposure to this investment fund. This fund spreads the risk into various sectors as the investment fund contains a wide variety of securities. This fund helps the risk-averse investors to take exposure to a diversified mutual fund scheme. Also, actively managing diversification helps in preventing the events that affect one sector and may reduce heavy losses if market conditions willingly go wrong anytime in future during the investment tenure.
Unlike sector funds where you can invest your money only in certain sectors, these funds provide a wider scope of diversification while making investments. Here the fund manager does the selection of companies from different sectors on the basis of a common theme. For example, the theme can be infrastructure funds which comprise of sectors like oil corporations, gas, steel, etc.
These funds carry a very minimum lock-in period and provide you a tax benefit of Rs 1.5 lakh under section 80C of I-T Act. These funds are equity linked which not only provide you the taxation benefit but also help in boosting your invested amount by generating a good amount of inflation-beaten corpus at the time of maturity. Mostly, the scheme which falls under this category has a lock-in period of 3 years only.
An index fund is a fund whose returns are matched with the market index component. These funds are passive in nature. Index funds generally have low expense ratio because of which they tend to outperform various other indexes. However, one should know that these funds consist of moderately high risk.