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What are the different types of equity funds in India?

mahindra-finance-author

by Mahindra Finance

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June 30, 2023

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5 mins read

What are the different types of equity funds in India?

Want to know more about the different types of equity funds and stocks you should invest in? Here’s a detailed guide to get you started on your journey!

If you lack the market knowledge to go about investing in stocks and expanding your portfolio, investing in equity mutual funds is a great place to start. Top investment solution provider companies such as Mahindra Finance Investment Solutions can help you invest on your behalf, and ensure that your wealth increases in the future. You can invest in several different types of equity funds based on different parameters that will provide you with rich gains in the long run.

Know Your Stocks: The Types Equity Funds Invest In

Investing in equity mutual funds is a great go-to investment strategy for those who want to multiply their money but don’t have enough market knowledge to invest in stocks themselves. However, have you ever wondered what type of equity funds invest in?

Company stocks can be classified into different categories based on market capitalization, risk, dividend payment and price trends. Fund managers choose which types of equity funds to invest in depending upon the investment strategy they follow.

Here’s what you need to know about the different types of stocks:

1. Stocks categorized based on market capitalization

Market capitalization is the total shareholding of a company outstanding in the market. It is the current market price of the share multiplied by the total number of outstanding shares. Based on this, equity stocks can be classified into:

1. Large-Cap Stocks

The Securities and Exchange Board of India (SEBI), the regulatory body for the stock market, defines large cap companies as the top 100 stocks according to market capitalization. Usually, their market cap runs into trillions of rupees. Shares of Infosys Ltd., Reliance Industries, TCS, etc. are some examples of the best large-cap stocks. Large-Cap Equity Mutual Funds invest predominantly in large-cap stocks.

2. Mid-Cap Stocks

According to SEBI, all companies that rank from 101 to 250 in terms of market cap are mid-cap companies. Some examples of this type of equity fund are Relaxo Footwears, Trent, Sundaram Fasteners, etc. Mid-Cap equity funds invest predominantly in mid-sized companies with profitable stocks.

3. Small-Cap Stocks

All companies that rank 251 and below based on market cap are small-cap companies. These companies have growth potential and can give investors high returns, but risks are also high. Some examples of small cap equity funds include Bajaj Consumer Care, Delta Corp Ltd., NESCO Ltd., etc.

You can find a list of small cap equity funds on the Association of Mutual Funds in India (AMFI) website.

2. Based on Risk

1. Blue-Chip stocks

SIP schemes help in inculcating financial discipline and are extremely convenient. Since money is deducted at a specific date in a timely manner, it's an excellent investment option for people who need something systematic.

2. High Beta stocks

SIP schemes are great for individuals who don't have much money to begin with either. Whether it be for millennials fresh in the workforce or experienced professionals, an SIP works for both. You can start an SIP with as low as Rs. 500 per month. It's important to know where to invest to get the best SIP returns.

3. Based on payouts

Depending on how a company uses its earnings, stocks can be classified into:

1. Income stocks

Some companies pay regular dividends to shareholders. These stocks are called dividend-paying or income-yielding stocks. Equity funds that are geared towards providing regular income to their investors invest in these types of equity funds. Examples of income stocks include TCS, ITC Ltd., Wipro, etc.

2. Growth stocks

Contrary to income stocks, growth stocks do not pay dividends. Instead, they reinvest earnings in the company for further growth. Funds that are looking to create wealth appreciation for investors invest in the best growth stocks. Examples of such profitable stocks include Bajaj Finance, Britannia Industries, Minda Industries, etc.

Stock prices are dependent on the market and economic conditions. Some respond directly to the economic environment while others may not. Based on this, stocks can be classified into:

1. Cyclical stocks

Some companies’ share prices fluctuate depending upon the economic environment of the country and the world. An economic boom tends to increase their prices and a drop deflates prices. Such company stocks are called cyclical stocks. Airline companies and automobile companies are the most common cyclical stocks. Funds looking for diversification benefits invest in these cyclical stocks.

2. Defensive stocks

Economic conditions do not affect defensive stocks. Instead, defensive stocks provide stability, especially in times of a crash. Funds invest in these defensive stocks for stability of a portfolio. FMCG stocks, pharmaceuticals or insurance stocks are often considered defensive stocks.

Economic conditions do not affect defensive stocks. Instead, defensive stocks provide stability, especially in times of a crash. Funds invest in these defensive stocks for stability of a portfolio. FMCG stocks, pharmaceuticals or insurance stocks are often considered defensive stocks.

The Final Word

Once you know the different types of equity funds invest in, you can understand a fund’s investment strategy better. Knowing the different kinds of stocks to invest in can help you make a more informed investment decision. As an investor, your aim should be to diversify your investments and make the highest returns possible. At Mahindra Finance Investment Solutions, we help you make the right investment by investing in a variety of profitable stocks!

Invest smartly, only with Mahindra Finance Investment Solutions!

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