Mutual funds are operated by pooling in money from investors. There are various factors on the basis of which one can select the mutual fund of their choice. One should procure knowledge about all different types of mutual funds before investing in one. Broadly categorized mutual funds can be of 3 types namely debt, equity and hybrid. The most popular among them is the equity mutual funds. These are the ones that invest in the stock market. The basic idea behind it is that they buy the shares of companies in huge amount to generate high returns by participating in the growth of the company. Apart from the company stock they also invest in bonds, papers and even cash.
Equity funds tend to generate higher returns as compared to debt funds or even fixed deposits and thus are ideal for fulfilling long-term goals. Every equity fund is led by a fund manager, who along with his research team imparts experience, expertise and knowledge required to take buy or sell decisions on stocks and give profitable return. A nominal fee is charged to the investor which is deducted from the invested money.
There are many benefits of investing in equity funds such as expert money management, low cost, convenience, diversification, systematic investments, flexibility and liquidity. There are numerous criteria on the basis of which equity funds can be classified. On the basis of the investment goals and the types of sectors and stocks that they will be investing in, these can be described under types such as diversified, multi-cap, mid-cap, index, thematic & sector, small cap and large-cap equity funds. Diversified funds are those which pump in investments across varying market capitalizations and market sectors. They have a broad range of companies that can be invested in, right from large companies to small ones. Sector and thematic funds focus their investments on only a specific market sector or they usually go by any specific theme. Due to its narrow range these tend to be riskier. Index funds are those that tend to follow a particular index and are passively managed. Large-cap, mid-cap, small-cap and multi-cap equity funds as the name suggests invest in companies of their respective size.
