Investing In Equity Mutual Funds

Mutual fund is a trust that pools money from a group of investors sharing common financial goals and invests the money thus collected into assets classes that match the stated investment objectives of the scheme. Equity mutual fund is a type of mutual fund. It is considered to be a more risky fund as compared to other fund types.

However, they also provide higher returns than other funds. It is a fund that mainly invests in stocks. These funds are categorized according to company size and the style of investment in the portfolio. They are specialty funds that mostly target business sectors like real estate, commodity sector, health care sector etc.

There are different types of equity mutual funds, each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds.

Types	Investment Objectives	Portfolio Of Investment	RisK Associated
Aggressive Growth Fund	Capital Appreciation	These funds are invested in less researched shares. The shares are highly risky in nature.	Highly volatile
Growth Fund	Capital Appreciation	These shares are invested in companies that are expected to perform well in the future.	Comparatively less volatile
Specialty Fund	Capital Appreciation	They follow a particular criterion of investment. The portfolio includes only those companies that fulfill these criteria.	They are concentrated funds. Hence the risk is higher than diversified funds
Diversified Equity Fund	Capital Appreciation	A small portion of investment is made in the money market. However this type of fund mainly invests in equities. It does not concentrate on a particular sector.	This type of fund is well diversified so risk associated with sector-specific or company-specific investment is reduced.
Equity Index Fund	Capital Appreciation	The portfolio of this fund comprises of the same companies that forms the index. It is constituted in the same proportion as the index.	The risk associated is similar to the benchmark index. However a broader indice is less risky than a narrow indice.
Value Funds	Capital Appreciation	This fund is invested in those companies that have sound fundamentals. The share prices of these companies are currently undervalued.	It is a low risk fund if compared to growth fund or specialty fund.
Equity Income/ Dividend Yield Fund	The investment objective is to generate high recurring income and steady capital appreciation.	This fund is usually invested in companies which generate high dividend.	The risk associated with this fund is the lowest as compared to others.

Equity mutual funds are also classified according to their market capitalization. Market capitalization simply means the company's stake in the market. It is the value of the company on the stock market. Market capitalization can be divided into three categories i.e. large cap, Mid cap and Small cap equity funds.

Large Cap Funds
Large cap mutual funds are funds that are invested in large companies like Reliance, ONGC, Infosys, Tata etc. These companies are less likely to go bankrupt. So investing in large cap funds will not make you suffer huge losses. On the other hand companies like Reliance and Infosys are already well established in the stock market, so their chances growing further are less. These companies have reached a saturation point so do not expect huge profits from them as the scope is limited. Large Cap funds are also known as "Blue Chip funds" and "Mega Cap Funds".

Mid Cap Funds
Mid cap funds are funds that fall in the bracket which is between the large cap funds and small cap funds. These funds are invested in a medium scale company. The risk associated with these funds is comparatively lesser than large cap funds but higher than small cap funds.

Small Cap Funds
Small cap funds are invested in small companies. Small companies are more likely to go bankrupt. So the risk associated with this category of equity mutual fund is very high as compared to large cap and mid cap funds. Small cap funds are exactly opposite to large cap funds. Even though the risk is high, there are equal chances of the company to make huge profits. This is because small companies have a scope of growing into a big coming in the near future. So small cap funds can be rewarding too.

Sector Funds
These funds are invested in a particular sector. Sector funds are highly risky. Only sophisticated investors actively participate in investing into such funds. Sector funds are sensitive to various factors such as interest rate and currency rate. It is beneficial not to invest in a sector fund if you are not a regular investor. A utility sector fund invests only in utility sector. Other examples of sector funds are pharma, auto, petroleum, health and care, technology and FMCG.

Examples of some equity mutual fund in India

Birla Sun life Top (G)

Fidelity Equity Fund (G)

UTI Opportunities Fund (G)

HDFC Mid cap Opportunities Fund (G)

UTI Equity Fund (G)

IDFC Premier Equity A (G)

In India, the concept of mutual fund stands similar to equity mutual fund. In a country like India a common man usually ends up saving his earnings through a bank fixed deposit. F.D is a common form of investment for the people. It is a safe investment but money grows very slowly. If you are looking for a long-term investment which is more than 5 years and you also want faster money growth then equity mutual fund is a good option.