Equity mutual funds are mutual fund schemes which invest primarily in equity and equity related securities. These funds are among the riskiest investments across all mutual fund product categories, but historical data shows us that equity is the best performing asset class in the long term. The risk profile of equity funds range from moderately aggressive to aggressive; investors should have high risk appetite for investing in equity funds. Equity funds can be classified into several sub-categories depending on their investment characteristics. The most common classification of equity funds is based on their market cap characteristics. As per SEBI’s directive on mutual fund classification there are e different equity fund categories based on their market cap characteristics:-
- Large cap funds
- Large and midcap funds
- Multi-cap funds
- Midcap funds
- Small cap funds
Further classifications are based on investment strategies / styles e.g.
- Focused funds
- Value funds
- Dividend yield funds
While most equity funds are diversified, i.e. they invest across different industry sectors, some equity funds may invest in particular themes or sectors – these are classified as thematic or sector funds. These funds carry sector risks and are considered to be among the riskiest equity fund categories, but if these investments are planned well in terms of entry and exit, they can give excellent returns. Irrespective of which category of equity fund you invest in, you should always have a long investment horizon and high risk appetite for these investments.
