Do you want to know, €what is equity fund?' Equity funds or equity schemes are stock mutual funds that are mainly invested in equities, such as, common stocks of publicly traded companies. These types of mutual funds (MF) invest at least 65% of the fund corpus into equity or equity related instruments. While investments carry the highest amount of risks among all kinds of MFs, they also provide a potential for high returns. Read on to know about the various kinds of equity funds available in the market.
The Different Types of Equity Funds
In order to know, €what is equity fund?€ you should also know about the types of equity schemes. Based on investment patters, its can be broadly categorized into four classes as follows.
€ Equity Diversified Funds (EDF's) - As the term suggests, these are funds that are actively managed and invested across stocks of multiple sectors. EDF's do not concentrate on only few sectors. They can focus on either large caps or mid and small caps. The performance of these stocks depends largely on how well the fund manager can buy and sell the right stocks at the right time. Thus, choosing a reliable fund house is essential for investing in EDFs.
€ Equity Linked Saving Schemes (ELSS) - This is also a kind of diversified equity fund. Investment in this scheme is eligible for an income tax deduction of up to Rs. 1 lakh under section 80C. However, investments made in this scheme cannot be redeemed for at least three years.
€ Index Funds - In simplest words, index funds are investments that attempt to replicate the performance of a given index of stocks. Index funds are also called low-cost, tax-efficient investment tools. Investing in these funds involve low operating expenses, and low turnover. Thus, it helps reduce your tax exposure too.
€ Exchange Traded Funds (ETFs) - ETFs are considered the least risky among all types of equity schemes. ETFs are essentially mutual funds schemes or index funds listed and traded on the exchange like stocks. These are priced continually and can be brought or sold throughout the trading day. ETFs can only be bought and sold on exchanges. Thus a DEMAT account will be required to buy or sell ETFs.
Now that you know €what is equity fund?', you should make the decision to invest in these funds carefully. As investing in equity funds involves high amount of risks and rewards, make sure that you have good understanding of the risks involved with a scheme, before investing in it. It is advisable that you should consult your fund manager and understand the equity schemes in details to avoid serious financial losses.
The Different Types of Equity Funds
In order to know, €what is equity fund?€ you should also know about the types of equity schemes. Based on investment patters, its can be broadly categorized into four classes as follows.
€ Equity Diversified Funds (EDF's) - As the term suggests, these are funds that are actively managed and invested across stocks of multiple sectors. EDF's do not concentrate on only few sectors. They can focus on either large caps or mid and small caps. The performance of these stocks depends largely on how well the fund manager can buy and sell the right stocks at the right time. Thus, choosing a reliable fund house is essential for investing in EDFs.
€ Equity Linked Saving Schemes (ELSS) - This is also a kind of diversified equity fund. Investment in this scheme is eligible for an income tax deduction of up to Rs. 1 lakh under section 80C. However, investments made in this scheme cannot be redeemed for at least three years.
€ Index Funds - In simplest words, index funds are investments that attempt to replicate the performance of a given index of stocks. Index funds are also called low-cost, tax-efficient investment tools. Investing in these funds involve low operating expenses, and low turnover. Thus, it helps reduce your tax exposure too.
€ Exchange Traded Funds (ETFs) - ETFs are considered the least risky among all types of equity schemes. ETFs are essentially mutual funds schemes or index funds listed and traded on the exchange like stocks. These are priced continually and can be brought or sold throughout the trading day. ETFs can only be bought and sold on exchanges. Thus a DEMAT account will be required to buy or sell ETFs.
Now that you know €what is equity fund?', you should make the decision to invest in these funds carefully. As investing in equity funds involves high amount of risks and rewards, make sure that you have good understanding of the risks involved with a scheme, before investing in it. It is advisable that you should consult your fund manager and understand the equity schemes in details to avoid serious financial losses.
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