5 Types of equity funds best for your portfolio
Mutual funds have become a popular means of investment in the past decade. Every mutual fund scheme fulfills different financial goals such as equality funds that promise high return-on-investment in long-term and fight off the inflation rate. However, few mutual funds walk into most security portfolios as they meet the basic investment needs, provide tax benefits and help easily manage and rebalance your portfolios.
5 Types of equity funds you should invest in
1. Large-cap funds
Lap cap funds include blue-chip companies that have large market capitalization. Large-cap funds provide stability and sustainability throughout the investment tenure. Though investors get a lesser return on investment than other MFs, the amount upon maturity can easily beat the inflation in the long run. Large-cap funds are ideal for achieving long-term goals.
2. Mid-small cap funds
Mid-small cap funds are known for their exceptionally high returns as well as high market risks. The schemes invest in the stocks of small and emerging companies that promise good returns in the future. These companies have lower market capitalization. If you are ready to take high risks, you can expect higher returns from mid-small cap funds.
3. Hybrid funds
Hybrid funds, as the name suggests, are the balanced funds that comprise of both equity and debt funds. However, over 65% of the assets are allocated to equity funds to gain the tax benefits of equity funds. Hybrid funds are great for amateur investors as they get the exposure to both equity and debt funds just by investing in one fund. Hybrid funds are safe, have low market risks than equity and get high returns and tax-saving benefits in one fund.
4. Diversified funds
The diversified fund is another type of MF that lowers the market risk and rebalances your security portfolio. This fund invests into a wide variety of securities and spreads the risk to various sectors. The investors with less risk appetite get a wide exposure to diverse MF schemes. Also, actively managing diversification prevents market risks and events that affect one sector. Diversified fund help reduce heavy losses due to market conditions during the investment tenure.
5. ELSS funds
ELSS is better known for its tax saving benefits. These funds have a minimum lock-in period of 3 years and save taxes in 3 ways –tax deduction, exemption, and through lock-in period. Under section 80C of the Income Tax Act, you get a tax benefit up to Rs 1.5 lakh. As these funds are equity-linked you can expect inflation-beating returns upon maturity in long-term along with tax saving benefits.
Apart from these, you can invest in index funds and thematic funds. Index funds outperform due to its low expense ratio, however, these funds consist of moderately high risk. Thematic funds provide a wider diversification while investing in MF. While investing in any type of MF, it’s important to know the market risks, return on investment, and whether the fund fulfills your financial goals.
