Investing in a good equity mutual fund scheme in India is a great way to build up your savings throughout the year. Equity mutual funds deploy investments in shares of several companies. Fund managers attempt to provide superior returns through spreading investments throughout companies in varied business sectors or with varying levels of market capitalizations too. In most scenarios, equity mutual funds usually offer superior returns in comparison to regular term-based deposits or even debt fund schemes. There is always a risk component linked to such funds although you must remember that their overall performance is dependent upon market circumstances.
When it comes to the best equity funds¸ there are several types that you can choose from in this regard. Remember that all equity mutual funds returns will not be equal; it depends largely on the kind of fund and its latent characteristics above all else. There are theme and sectoral funds where the equity mutual fund may adhere to any particular theme for investment, i.e. a global stock theme or any emerging market theme among others. Some plans may invest in any specific business sector in the market including pharmaceuticals, banking and financial services and so on. You should remember that theme or sectoral funds have higher risk levels since they usually emphasize upon any specific business theme or sector. There are focused equity mutual funds which invest in a maximum number of 30 stocks of entities with market capitalization being specified at the time of the scheme’s launch. Contra equity funds have a contrarian investment strategy or style. They analyze markets for working out stocks which are not doing well and buy them at comparatively lower prices with the assumption that they will recover ultimately in the long haul. There are large cap funds which usually invest at least 80% of overall assets into buying equity shares of large cap entities. These plans are usually more stable than small cap or mid cap focused mutual funds. Mid cap funds usually deploy close to 65% of overall assets in purchasing equity shares of mid cap entities. They mostly offer comparatively stellar returns as compared to large cap funds although with higher volatility levels in the bargain. Small cap funds usually invest approximately 65% of overall assets into equity share purchases of small cap entities. The schemes usually provide good returns as compared to mid and large cap plans but they have higher volatility levels alongside. Multi cap funds usually deploy 65% of assets into equity shares of large, mid and small cap entities in diverse proportions. The fund managers rebalance portfolios for staying in sync with markets and economic circumstances along with investment goals of schemes. ELSS is the sole plan which offers tax deductions up to Rs. 1.5 lakh under Section 80C. They invest 80% of overall assets into equity and equity linked instruments. They also have three year lock-in periods likewise. Other equity funds are non-tax saving plans. Returns will incur capital gains taxes. The benefits include lower expense ratios, diversification of the portfolio, expert management of investments, SIP or systematic investment plan options and higher liquidity, flexibility and cost-effectiveness in turn.
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