Here are the five basic formats of equity mutual funds to help you invest better
Is it the right time for you to invest in mutual funds? Choosing the right mutual fund in one’s portfolio is not an easy task. Here are the five basic formats of equity mutual funds to help you invest better.
Large-Cap Funds | Large-cap funds are less risky equity mutual funds as they consist of stocks of blue-chip companies having large market capitalisation. The returns may be lower than other equity mutual fund categories, nonetheless, the returns usually beat inflation when one invests money over a longer period of time. Hence, these funds should be a core part of one’s portfolio.
Multi-cap funds | These funds give you a mix of all three funds – large-cap, mid-cap and small-cap. It is generally not dependent on the market capitalisation of a company, which helps the fund manager to take opportunities from the market volatility and switch investment around the several funds. The scope of diversifying the investment widens in multi-cap funds. This is the ideal way of spreading your investment across various funds.
Mid/Small Cap Funds | Mid-cap or small-cap funds are highly volatile and provide high returns when invested for a longer period of time. This category of funds is highly risky in nature as the investment is made in small and emerging companies’ stocks. These companies mostly have a low market capitalisation along with a vision of growth.
Tax Savings Fund | These funds are categorised as equity-linked savings fund. They come with a minimum lock-in period of three years and provide you with a tax benefit of up to Rs 1.5 lakh under section 80C of Income Tax Act. Lock-in period gives the fund manager more flexibility in choosing their investments. Therefore, look for a fund which has a long-term perspective on making investments. Hence, these funds can be considered as one of the best, as they provide capital appreciation along with tax savings.
Thematic Funds | Unlike sector funds, thematic funds are well-diversified funds. Whereas in sectoral funds, you can only invest in certain sectors which requires expertise before making any investment. The themes which are considerably doing well these days are the consumption and infrastructure themes. While forming a theme, the fund manager makes the selection of companies from different sectors on the basis of a common theme.
