What is Equity Fund? Types, Benefits, Taxation & How to invest?
Greetings Investors! In today’s scenario, who do not dream to increase his wealth in a short duration? Who is not appetite to become the owner of some reputed company? Who does not wish to gain variant but a high rate of returns on their invested units?
Certainly, everybody desires for everything which sounds quick and luxurious. The maximum turnovers in less duration, company ownership, a strong source of income, endless joyful occupation and what not is provided by the Equity Fund?
What is an Equity Fund?
Equity Fund Definition- Equity fund is a mutual fund that invests principally in stocks. It is also known as stock funds.
Equity Fund Meaning– An equity Fund is a type of Mutual Fund which is used by the financial experts to invest into so that to provide maximum benefits to their investors in a less proportion time.
Let us first go through the Equity Fund basics.
An Equity Fund is a collection of money gathered by the concerning company from the investors meant to be invested in equity shares only. What does this Mutual Fund do is that it pools the money from the investors and invests them in equity shares on the investor’s consent.
Point to be noted that the investment is done by the hired financial experts who are backed by the long experience and who are well-versed with the knowledge of the market economy. They evaluate the best equity fund schemes from the Indian market economy and select the best channel to finally invest the investors’ money.
The invested money positive increment totally depends upon the company’s prosperity. The more the company will prosper, the more the dividend is provided to the investor.
There is a high chance of getting high-returns also, and that is only why, most of the users want to make investments in equity Fund because, in less duration, they are able to acquire maximum wealth.
It is aptly true that “In investing, what is comfortable is rarely profitable.”
When it comes to investment, three things strike the mind that is overwhelming, scary and intimidating.
Let us read the article carefully to know details about equity funds!
Let’s get started!
Types of Equity Mutual funds
The Equity Fund of the Mutual Fund is of 4 types, all having their significance. Let us see how-
Diversified Equity Funds
Diversified funds mean funds which are invested in various categories of destinations. Your destination can be industrial, technological or anything other. Your equity fund will be invested in equity shares only but it is just that it can be invested in various sectors or industries or variant sizes of the companies.
Sector and Thematic Funds
If the investor wishes to invest in some particular sectors like he/she desires to invest for equity shares of technological industries only or of the manufacturing industries, then he/ she’s funding will be categorized under Sector funds.
Similarly, if the equity funds follow some particular pattern/ theme of investment like investing in Startup companies, international stocks or emerging consumer industries, then that equity fund is termed as the Thematic Funds.
Large-cap, Midcap, Smallcap and Multicap Mutual Fund
Large Capital Funds are those funds which are meant to be invested in large-size companies- Large companies mean the companies which have large capital investment, well-established, stable and have strong market goodwill. This company not only provides security to your funds but also holds the ability to deliver you the profits timely, even after facing threats.
The Mid and small companies are those which are small in nature and whose level of operation is much smaller than the large companies.
They are either startups or just the growing companies. The investment in these companies is termed as Mid-cap and Small-cap Funds.
If all three funds are compared then the investment in large companies, turns out the best option because it has some guarantee to pay your earned profits out of your investments.
The other two have no guarantees of payment.
Besides these, there is one more kind of fund which is known as the multi cap funds. It is the mix of all the three kinds of fund where the fund of the investor is invested in large companies, mid-size companies and also small-size companies.
This is done to save the interest of the investor so that if one capital fund faces some losses, the other fund is able to pay the compensation in return of it.
These funds are meant to be invested in particular-categorized groups of companies. These groups are set and standardized by the SEBI (Stock Exchange board of India). The SEBI form groups of companies like NIFTY or Sensex.
Funds with an objective to generate returns that are commensurate with the performance of a benchmark index. Only funds benchmarked to CNX Nifty Index and S&P BSE Sensex will be considered. Into these groups, the funds are invested as a whole (not individually to every company).
Benefits of Investing in Equity Fund
are you thinking about why to invest in Top Equity Mutual Fund?
Please take a read at the following!
Mutual Fund Advantages-
- The investor enjoys the nice amount of return on their investment when the company prospers.
- The real investor gains the benefit of supervision from the financial experts who work to safeguard the interest of the investor.
- You can diversify your funds at various capital industries and sectors and can enjoy some meaningful benefits.
- Investments on equity funds for more than a year gives you an advantage of not bearing any taxation. It is completely free.
- It offers to a flexibility to invest or redeem our investment at any time. You can redeem your investment at the current NAV value which may be higher than the NAV at which you had purchased. You can invest more to buy equity fund units at the time of market fall at some lower NAV value.
- The Systematic Investment plan avails you a help to deduct a negotiable amount from your bank account on a regular monthly basis so that that amount can be used for investment by the professionals when the market Sensex is high. In this way, the investor doesn’t feel any burden on himself to invest a large amount of money altogether.
Mutual Fund Disadvantages-
- The rate of dividend is not fixed in nature. It is dependent on the company’s profit and loss earnings and according to that; the equity holders get the benefits. Sometimes, they do not get benefits in times of company losses.
- Although, the equity holder is the owner of the company as he is the small investor, therefore, his decision on company matters hardly matters to the decision board.
- The equity shareholders get the benefit after it is provided to the preference shareholders. After deducting the benefits of priority holders, the equity holders get the left benefits at the last.
- How to Earn Money From Share Market?
How to invest in Equity Funds?
If you want to invest your money in any kind of funds, you should first grab all the necessary details before executing your investment.
- In the case of equity fund what you have to do is to visit the Mutual Fund Service center.
- Take a membership from the Mutual fund as an investor and just register yourself as an investor of equity funds only.
- After this, you have to pay a certain amount of money (as per your reverence) to the agent. The paid amount would be considered as your investment unit here.
- The investment unit will be handed over to the financial experts in the investment field who will take care of your investment.
- They will evaluate the different stock schemes operating in the market and select the best scheme for you which turns the maximum benefits.
- The benefits earned are directly transferred to your bank account.
- In charge of their service, some service amount is required to be paid to these professionals.
- When the investor wants to exit from the investment business, he can just consult this with his agent and then withdraw the total amount from his bank account.
- He can also sell his funds at NAV which may be higher than the purchased NAV; the choice is totally dependent on him.
SIP – The best way to invest in equity funds
Systematic Investment Plan (SIP) is really a systematic approach for the investors who cannot pay the money in a lump sum for the investment or who do not want to bear high risks. So, SIP enables the individual to transfer the negotiable fixed amount in the name of investment in his/her bank account. This money is used by the Mutual Fund professionals to invest it in diversifying funds.
The advantage of doing this plan is that when markets are high, the lower units are transferred to you and when markets are low, more units are transferred to your bank account. This is like a smooth ongoing business.
Are you getting these points discussed above? If you are not able to understand anything, then please contact us via comment box given below.
Equity Fund Vs Debt Fund
To know the difference between the two, please take a look at the following table
|BASIS FOR COMPARISON||DEBT||EQUITY|
|Meaning||Funds owed by the company towards another party are known as Debt.||Funds raised by the company by issuing shares are known as Equity.|
|What is it?||Loan Funds||Own Funds|
|Term||Comparatively short term||Long-term|
|Status of holders||Lenders||Proprietors|
|Types||Term loan, Debentures, Bonds etc.||Shares and Stocks.|
|Nature of return||Fixed and regular||Variable and irregular|
|Collateral||Essential to secure loans, but funds can be raised otherwise also.||Not required|
Equity Mutual Fund Charges and Fees?
Dear Investors, Equity mutual funds fee and expenses are the charges that may be bear by the investors who hold mutual funds.
It consists of shareholder transaction cost, investment advisory fees, and marketing and distribution expenses.
Talking about expense ratio? It is the annual fees that are charged by the mutual fund scheme to manage money on your behalf.
It includes the fund manager fees along with the other expenses or cost required to run the fund administration.
Equity funds charge a maximum of 2.5 percent. The components of the expense ratio are management and advisory fees.
The expense ratio varies from fund to fund.
It is composed of the following
- Hiring costs
- Distribution and services
- Account Fees
- Other expenses
Frequently Asked Question–Equity funds
Q. – Are Equity Funds a good investment?
Ans Aspirants, to pick a mutual fund that will be a “GREAT “investment for you, you have to define your investing goals and objectives.
It allows you to capture the returns of an entire segment of the market without buying and selling stocks and bonds.
The ability to diversify across many investments with the purchase of a single fund is one of the main reasons mutual funds are so popular.
Q. – What is Equity Funds taxation?
There are 2 categories of equity funds short term and long term. Thus, the longer you hold onto your mutual fund units, the more tax-efficient they became.
To understand this, please check the given below table
|Equity funds||Less than 12 months||12 months and more|
|Balanced funds||Less than 12 months||12 months and more|
|Debt funds||Less than 36 months||36 months and more|
Equity-Linked Saving Scheme (ELSS) is the most efficient tax-saving instruments under Section 80C of the Income Tax Act 1961. These are diversified equity funds which invest in equity shares of companies across market capitalization.
Q. – Are equity funds tax-free?
Ans – Dear investors, the basic intention behind investing in mutual funds is to earn higher interest, dividends and capital gains. It is pertinent to know that these capital gains are taxed by the income tax authorities.
Long-term capital gains (LTCG) on non-tax saving equity funds of up to Rs 1 lakh are tax-free.
Equity fund can be tax saving or non-tax saving.
Equity fund- Conclusion
A Sincere advice for all the investors is for successful equity investing, one must perform a lot of research. Dig deep into the financial state of the company before you proceed for investment.
Dear readers! I hope you had a gala time reading the content on “Equity funds” in India.
As an investor, always remind that your chosen level of risk and investment horizon play a key decisive role.
It is aptly stated guys that “An investment in knowledge pays the best interest”.