In Which Equity Funds Categories Should We Invest?

India’s mutual funds are growing in popularity and this has supercharged the country’s asset management market. Among many investors, choosing to invest in equity funds is a widespread tactic for achieving their wealth aspirations over time. Consequently, an investor must be well conversant with each category of equity fund before they make their investment decision. In this blog post, we will look at some key things about equity funds, including benefits and how you can pick the right one for your financial objectives.

What are the Reasons to invest in Equity Funds?

  • Diversification

Equity funds scatter investments across various stocks, sectors, and industries. This dilution mitigates the perils involved in investing through individual stocks since poor performance in one stock or sector can be wiped out by better performance from others.

  • Professional Management

Equity funds are managed by experienced fund managers who do thorough research and evaluate markets before making investment choices. The objective of this professional management is to increase maximum returns while controlling risk.

  • Accessibility

The low minimum investment requirements for equity funds enable them to be available for many types of investors including those with limited capital resources. This enables individuals to start investing and develop their portfolios without a substantial initial amount.

  • Liquidity

High liquidity levels are characteristic features of equity funds, meaning that investors can easily buy as well as sell units of such a fund on any working day. This means that investors can come in or move out of their investments whenever they want.

Exploring Equity Fund Categories

There are different categories of equity funds, each having its unique features and risk-reward profile. Here are some:

  • Large-Cap Funds

These are funds that usually invest in firms with a large market capitalization. Normally these firms have long records of stable performance.

  • Mid-Cap Funds

They are also known as mid-cap equities. Their investment is focused on companies having medium market capitalization. Mostly, such businesses are in their growth phase and provide greater profits compared to large-cap stocks though they experience higher volatility.

  • Small-Cap Funds

They deal with investments for small-scale companies with the potential for rapid increase in value. Such funds earn huge revenues but it has more risks and volatility. Investors who can afford high risks and have long-term goals will select these kinds of funds.

  • Multi Cap Mutual Funds

The multi cap mutual funds that can be classified into multi-cap ones include those that buy stock from large caps, mid-caps, as well as small caps funds. This diversified approach aims at balancing out risk against rewards to bring about a combination of stability and growth potential.

  • Large & Mid-Cap Funds

Combining investments in large and medium-sized corporations, the funds are capable of offering a blend of stability and growth. They guarantee the stability of large-cap investments while at the same time capturing mid-cap stock market opportunities.

  • ELSS Mutual Funds

ELSS mutual funds are tax-saving mutual fund that primarily invests in equities. These schemes have a three-year lock-in period and provide tax deductions up to Rs 1.5 lakh under section 80C of the Income Tax Act.

  • Sectoral/Thematic Funds

They focus on investing in sectors such as IT, healthcare, or infrastructure. Depending on their choice sectors’ performance, these funds may generate high returns; however, they also carry a greater risk since they lack diversification.

  • Focused Equity Funds

A focused equity fund will invest in less than 30 carefully selected stocks. By selecting a few stocks for investment, these mutual funds aim to achieve higher returns through the strategic selection of individual funds.

  • Contra Equity Funds

The strategy adopted by contra-equity funds involves investment into shares that the market avoids at all costs. With this approach, you can purchase undervalued stocks to take advantage when prices rise later on.

What Are The Key Factors to Consider When Selecting Equity Funds?

Choosing the appropriate equity funds should be guided by a variety of factors to meet your investment goals and risk appetite.

  • Determine Your Risk Tolerance

Having a clue about how much market risk you can withstand is important. For lower risks, go for large-cap or multi-cap mutual funds while for higher risks, small-cap,mid-cap, or sectoral funds may suit you better.

  • Define Your Time Horizon

The length of time you plan to invest may determine the kind of fund you select. Higher-risk investments are suitable for long-term goals while conservative ones are good for short-term targets.

  • Align with Financial Goals

Decide whether you aim to achieve capital appreciation, regular income, or both. Growth-oriented funds seek capital gain whereas income-focused ones generate regular dividend payments.


For the right investor, equity funds have a huge potential for creating wealth. It is possible to achieve such if one selects suitable types of funds based on one’s risk appetite, investment horizon, and financial goals. 

The growth of the Indian mutual fund industry is still underway hence there are numerous opportunities ahead for investors. You can realize your financial dreams by making informed decisions and sticking to your investment plan through the use of equity funds.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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