Lesser-known equity fund types to add to your portfolio

When examining investment possibilities in mutual funds, you’ll come across a range of equity mutual funds, including large-cap funds, multi-cap funds, mid-cap funds, equity-linked savings schemes (ELSSs), and small-cap funds. Many of these types can be seen as integral elements of a well-planned investment portfolio. This is because such funds offer exposure to different market segments, catering to varying risk tolerances and financial objectives.

In addition to these well-known options, there are less common types of equity funds that can add a unique aspect to your market investment approach and strategy. These funds include:

Value Funds: Value funds adopt a value investing strategy, focusing on stocks that are perceived to be undervalued and may have long-term growth potential. These funds invest at least 65% of their assets in equity, and the investment process aligns with the philosophy of buying stocks at a discount to their intrinsic value.

Sectoral/Thematic Funds: These equity mutual funds concentrate on a specific theme or sector, investing at least 80% of their assets in equities. Whether they invest in healthcare, technology, or sustainability, Sectoral/thematic funds provide the opportunity to align your portfolio with your interests and beliefs, potentially benefiting from emerging trends.

Focused Fund: Focused funds limit the number of stocks in your investment to a maximum of 30. These funds concentrate on different investment aspects and invest in large-, multi-, mid-, or small-cap stocks, and they can be tailored to specific investment objectives.

Contra Fund: Contra funds invest at least 65% of their assets in equities. Contra funds offer a unique opportunity to potentially benefit from market inefficiencies and stocks that may be temporarily undervalued.

Dividend Yield Fund: These equity funds invest in dividend-yielding stocks, thereby offering a consistent stream of income. With a minimum investment of 65% in equities, Dividend yield funds could be a suitable choice for investors looking for a balance between potential capital appreciation and regular dividends.

Why Consider Lesser-Known Equity Funds

Broadening Your Investment Scope The basic tenet of investing is diversification. By incorporating lesser-known equity funds, you’re adding a mix of investment styles and segments to your portfolio. Each fund type responds uniquely to market conditions, economic events, and other influences. The goal of diversification is to mitigate the effects of underperformance in any one segment, leading to a more balanced and robust portfolio. It’s akin to spreading your resources, mitigating risk, and enhancing the potential for consistent performance over an extended period.

Regular Income Funds that focus on dividend yield primarily invest in stocks recognized for their dividend payments. These mutual funds aim to provide a steady income stream, which could be a viable option if you’re looking for regular pay-outs to meet your expenses. The dividend income not only contributes to the overall performance of the investment portfolio but also serves as a buffer during times of market fluctuations by potentially providing cash inflow irrespective of the market’s performance.

Opportunities in Value Investing Value and contra funds utilize distinct investment strategies. Value funds invest in stocks believed to be trading below their actual worth, with the potential for these assets to appreciate as the market acknowledges their inherent value. Contra funds, on the other hand, go against market trends, identifying stocks that are temporarily unpopular. Both strategies offer the potential for long-term capital growth by capitalizing on market inefficiencies and mispricing.

Focused Approach Focused funds invest in a limited number of stocks, allowing you to concentrate your investments on themes or market segments. By focusing on specific stocks, you can potentially benefit from comprehensive research and a deep understanding of the chosen sectors, which may enhance your potential for competitive performance.

Targeted Exposure Sectoral/thematic funds concentrate on specific sectors, industries, or themes, providing targeted exposure to markets that may have significant growth potential. This approach enables you to leverage technological advancements and emerging trends. By aligning your investments with thematic developments, you may potentially benefit from specific market dynamics or economic factors to achieve competitive performance.

Managing Risk Contra funds use contrarian strategies that involve investing against current market sentiments. This approach could potentially serve as a safeguard during market downturns, as the fund may hold assets that remain stable or even appreciate when the broader market faces challenges. Similarly, the selective nature of focused funds allows for meticulous risk management.

Ending note

Including lesser-known equity mutual funds in your investment portfolio could potentially provide unique opportunities for growth, income generation, and diversification, among other advantages. As your investment requirements and objectives change, considering such alternatives could be a strategic step and potentially contribute to improving your financial health and corpus over an extended period. It’s advisable to seek advice from a financial advisor before making any decision related to market-linked investments for appropriate suggestions, as well as to customize your investments according to your needs and risk tolerance.

Source: Axismf Research

Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.