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Equity Mutual Funds - Type, Investment Modes & Tips on Your Fingertips

At a time when the increasing inflation is fast depreciating the value of money, the traditional bank and post office deposits are failing to come to terms with the expenses of today. Whatu2019s worrisome is that inflationary pressures would only add up in times to come. So, you must look beyond the traditional investment methodology or ideology, whatever you would like to call it, to sail through the inflation.

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Equity Mutual Funds - Type, Investment Modes & Tips on Your Fingertips

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  1. Equity Mutual Funds - Type, Investment Modes & Tips on Your Fingertips

  2. At a time when the increasing inflation is fast depreciating the value of money, the traditional bank and post office deposits are failing to come to terms with the expenses of today. What’s worrisome is that inflationary pressures would only add up in times to come. So, you must look beyond the traditional investment methodology or ideology, whatever you would like to call it, to sail through the inflation.

  3. One such tool by which you can combat inflation better is by investing in the power of equities. While investing in equities is a good idea, we won’t advise you to do it directly. Rather, you should take the mutual fund route to invest in the said asset class. Mutual funds are a pool of money collected from several investors wanting to achieve a common goal. Equity MF investments are made in carefully researched, hand-picked stocks to ensure a greater diversification of the capital. Let’s study equity mutual funds, their type and the mode by which you should invest in the same.

  4. What are Equity Mutual Funds? Equity mutual funds are those funds that invest predominantly in equity and equity derivatives. These funds are basically driven with an objective to appreciate the growth of the invested capital over time.

  5. Types of Equity Mutual Funds Equity funds are basically of the following types - • Large-cap Funds • Multi-cap Funds • Mid-cap Funds • Small-cap Funds • ELSS Funds • Sector Funds

  6. Large-cap Funds - These funds invest mainly in the top 100 stocks according to the market capitalization. The investments are made in companies having strong business fundamentals. Investing in these funds may not give a huge spike in the returns. But, it can provide reasonably good returns over time. Multi-cap Funds - These funds are rightly tagged as the most diversified equity funds. It’s because of the fact that these funds invest across the market capitalizations. By spreading the fund assets across different stocks, it looks to churn up high returns while also ensuring a cushion to your investments against the market plunges.

  7. Mid-cap Funds - These funds choose the top 101-250 stocks according to the market capitalization for investment. Investments are made predominantly in mid-sized companies having reasonably good business fundamentals. Small-cap Funds - These funds invest mainly in companies which come after top 250 companies according to the market capitalization. The asset allocation is made in stocks of emerging companies with bright prospects. These funds can provide steep returns in the short-term.

  8. ELSS Funds - Won’t you like the combo of capital appreciation and tax savings? You would, right? Well, Equity-linked Savings Scheme (ELSS) can help you get that coveted combo. The money invested in these funds is routed to the power of equity while offering a tax exemption of up to ₹1.5 lakh in a financial year. Sector Funds - As the name suggests, these funds invest across specific sectors of the economy, such as automobile, pharmaceuticals, banking, IT, etc. The scope for diversification is, however, lower in these funds.

  9. Modes of Investment in Equity Mutual Funds You can invest in equity funds via any of the following two methods- • Lump Sum • Systematic Investment Plan (SIP)

  10. You can invest a lump sum amount either once or afterward. On the other hand, SIP is a disciplined and regular approach to investing. SIP investments can be made on a daily, weekly, fortnightly, monthly, quarterly, half-yearly and yearly basis. However, the monthly mode of investment is considered good by many as it instills discipline among investors. The money invested through SIPs fights market fluctuations better by averaging out the cost of investment. Further, it helps raise the invested capital exponentially over time by leveraging from the power of compounding feature.

  11. Who Should Invest in Equity MFs? • Those who have high risk-taking ability and can bear market fluctuations • Those who can invest for a long time • Those having an investment goal of capital appreciation over time.

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