Seek Long Term Capital Appreciation With Equity Mutual Funds

There are many investment tools in the market that can help you generate long-term income. One of the investment tools you can choose to invest your money in is equity mutual funds. “What is an equity fund,” you may ask? A category of mutual funds, an equity fund invests predominantly in assets like the stocks of companies. By essentially investing in company shares, they aim to provide the benefit of professional management and diversification to ordinary investors. They help the investor with long-term income and therefore are also referred to as growth funds. Listed below are some of the important details of equity mutual funds:

How do they work?
Equity mutual fund invest a major part of their assets in equity shares of various companies in different proportions. Assets allocated are dependent on the type of the equity fund and its alignment with the investment objective. Based on the market conditions, assets can be allocated in stocks of small-cap, mid-cap, or large-cap companies. Once a significant portion of the funds are allocated to the equity segment, the remaining amount is invested in other instruments like money market instruments and debt. This helps with things like bringing down the element of risk and taking care of sudden redemption requests. If you are considering investing in equity funds, you should make sure that your decision to invest is in sync with factors like your risk profile, investment horizon and financial objectives. In case you have a long-term goal, it is advisable for you to consider investing in equity funds. Doing so may provide your funds with the much-needed time to combat market movements and fluctuations.

What are the types of equity mutual funds?
The different types of equity mutual funds can be classified based on different categories like:

Based on Investment Objective:
Even though the objective of all equity funds is the generation of capital appreciation and saving on taxes, the risk that is taken to achieve this objective varies. Further, this also depends upon the types of stocks that the fund invests in. Listed below are some types of equity mutual funds based on their investment objective:

• Small-cap equity funds:
This type of equity mutual fund scheme invests money in companies that rank above 250 in terms of their full market capitalisation. While investing money in these funds, you need to brace yourself for some risks. The minimum exposure to such stocks is 65% of the total assets invested.

• Mid-cap equity funds:
Here, the equity mutual fund scheme invests in companies that rank between 101 and 250 by their full market capitalization. Like small-cap funds, investors need to brace themselves for risks in mid-cap funds as well. Another similarity to small-cap funds is that their minimum exposure to such stocks is 65% of the total assets.

• Large-cap equity funds:
They invest in companies that rank between 1 and 100 in terms of full market capitalization. These funds invest mostly in the stocks of large-sized companies. The minimum exposure to such stocks is 80% of the total assets.

• Large & mid-cap equity funds:
These funds equally divide the allocation between large and mid-cap equities and even other related instruments. The mandated minimum exposure to both large cap and mid-cap stocks is 35% each of the total assets.

• Multi-cap funds:
They invest in all stocks, namely large, mid, and small-cap companies. The allocation of funds here depends on the market conditions. Their minimum exposure to such equities is 65% of the total assets.

Based on Investment Strategy:
If you are an investor, you also need to know the investment strategy followed by the fund managers. Investment strategy refers to the methodology used to select the stocks. The key investment strategies are:

• Top-down strategy:
In this strategy, the fund manager or the investor chooses the sector first. Then, the stocks within that sector are purchased in the portfolio.

• Bottom-up strategy:
Here, investors first carry out thorough research on which stocks are performing well. Then, they go ahead and buy stocks regardless of the sector.

• Growth strategy:
The fund will invest in companies that have a consistent track record of profitability and growth. They invest in these stocks believing that the companies are likely to sustain on this path.

• Value strategy:
Here, the fund will invest in companies that have the potential to grow exponentially in the future and are currently available at a lower value.

Based on Asset Allocation:
Some funds are known for splitting portfolio allocation between equity and the remaining assets in debt or between domestic and international equity. While allocating, it is important to look at investing from a tax-efficiency perspective as per the provisions of the Indian Income Tax Act, 1961. International equity funds that have a predominant foreign equity allocation are considered debt funds for income tax purposes.

• Equity-linked savings scheme (ELSS):
They are tax-saving mutual fund investment schemes that invest predominantly in equity and equity-related schemes. Under the provisions of this scheme, the fund manager allocates money majorly to equity.

What are its Advantages?
Investing in equity mutual funds comes with a wide range of benefits:

• They are easy on the pocket:
An individual can invest in equity funds through a SIP (systematic investment plan) wherein the investor concerned can make weekly, monthly or quarterly investments as low as ?500. Investing through SIP helps tolerate the volatility of the equity markets through rupee-cost averaging.

• They are professionally managed:
Another advantage of equity funds is that they are managed professionally i.e. through fund managers. They are market experts who professionally manage the portfolios on behalf of the investors. They study the market, analyze the performance of various companies and invest in the stocks that are performing well and that could deliver revenue to the investors.

• Portfolio diversification is possible:
Here, investors are exposed to various stocks when they invest in an equity mutual fund. So, even if some stocks in the portfolio underperform, the investors can rely on the performance of the other stock investments.

Start exploring options today with Axis MF's investment app to make informed and convenient investment decisions.

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. 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.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.