What are Equity Mutual Funds & How it Works?

Mutual funds are one of the preferred investment vehicles for retail investors. Not only do they offer high returns, but they also provide tax benefits. However, the availability of different types of mutual funds often confuses investors. That said, if you are planning to invest in the shares of companies, an equity fund can be the right option.

Wondering what is an equity fund? Read on to learn about it.

Equity Fund is a type of mutual fund scheme that primarily invests in the shares of various companies across market capitalization. With this type of mutual fund, fund managers aim to generate higher returns by spreading investments into different company shares or stocks.

At this point, prospective investors must be thinking about how an equity mutual fund works. Here is the answer -

Investors invest their wealth in such a mutual fund scheme via a lump sum payment or SIP. Thereafter, this sum gets invested in an array of stocks on their behalf by the fund manager.

In addition, as per the regulations of the Securities Exchange Board of India (SEBI), equity mutual funds must invest a minimum of 65% of the corpus into equity or equity-related instruments.

Equity mutual funds mandate investing 65% of their assets in equity shares of different companies. The asset allocation occurs in alignment with the investment objective. Depending on the market condition, the asset allocation can be done in small-cap, large-cap, or mid-cap companies.

Once asset allocation is done in various equity shares, the remaining amount can go into debt or money market instruments. Keeping in mind risk level and sudden redemption request, the fund manager makes buying or selling decisions to match the market movement and reap maximum return.

Investors wondering how to invest in equity funds in India can choose any of the following investment processes:

• Lumpsum Investment: In lump sum equity fund investment, investors pay the entire investment amount in a single payment.
• Investment via SIP: In Systematic Investment Planning or SIP, investors pay a small amount at regular intervals for a pre-set tenure.

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