Equity Funds is an investment in the shares of different companies. The fund manager offers great returns by investing his investment across companies from different sectors or with varying market capitalizations. In general, equity funds are known to generate better returns than term deposits or other debt-based funds.
Factors to consider before investing in an equity fund
If you are ready to start investing in equity funds, then below are some factors to remember that will help you choose the correct fund:
1.Size Of The Fund
The size of the fund is known as the total assets under management. There is not a perfect definition but if your fund is too large or too small, the fund’s performance can get directly affected. One solution of it is by comparing AuMs with the category average.
As a mutual fund investor, the person will have to ready to give the fund management costs charged as an expense ratio. Always ensure that you check the expense ratio and compare it with the category average.
3.Types Of Equity Funds
There are four different ways in which an Equity Fund can categorize:
Sectoral funds –
These equity funds invest in a specific sector of the market. So, the person can have a BFSI or Pharma, or IT equity fund they can invest in the said sector alone.
Thematic funds –
These equity funds contain a theme for picking stocks. Examples are an emerging market theme where the fund invests in stocks from emerging markets., exports and services theme, others also like this category.
Focused Equity Funds –
The funds invest only in a fixed number of stocks. Focused Equity Funds allows investing in a maximum of 30 stocks across different market categories. A Focused Equity Fund is like a multi-cap fund with a limit on the number of stocks it can invest in.
These equity funds are small-cap, mid-cap, large-cap and multi-cap funds.
Funds based on investment style are value funds and contra funds. While value funds invest in undervalued stocks, contra funds usually go for stocks that are presently not performing well.