Equity funds have been found among the best ways for investing one’s money while looking for big returns from investments. These equity funds are generally a trust that is being handled by fund managers who pool the savings of a large number of investors sharing similar financial goals. One can invest in these equity funds either through systematic investment plans (SIP) or one time investment. SIP was introduced in order to average the cost of investment through purchase of few units at regular time intervals irrespective of market conditions thereby decreasing the volatility of the funds.
Equity funds are essentially invested in equity shares of the companies. The return is given in terms of capital appreciation and is generally termed high risk investment compared to debt funds. Although equity funds are riskier investment considered to traditional investment schemes, the high returns offered by them tilt the scale in their favor and they have outperformed most of the asset classes when it comes to long-term investment.
Equity funds can be categorized into various groups based on different parameters. They are aggressive growth funds, growth funds, specialty funds, sector funds, foreign funds, mid-cap or small-cap funds, large cap funds, diversified equity funds, equity index funds, value funds, equity income and debt yield funds.
While aggressive growth funds are higher risk funds and prone to volatility since the investment is done without proper research and only based on speculations. Growth funds are generally invested in companies that are expected to post good earnings in future. Specialty funds have well defined criteria for investment and would only invest in companies that meet those criteria. Sectors fund on the other hand are invested in a particular sector and their exposure is limited to those sectors only. Foreign security funds are invested in companies with international diversification. Diversified funds are invested without a particular focus for any sector. They are diversified thereby reducing risks that are prevalent in sector specific or company specific investment.
Value funds are those invested in companies that have strong fundamentals while their share prices are under-valued at the time of investment. Equity income funds are referred to as good recurring income with steady appreciation of capital through investment in companies that are issuing high dividends.
Equity Funds are usually kept for long time and the dividend payments are not likely for tax deductions. These funds require shared control over the company and at times may impose certain restrictions keeping in view the market sentiments. The shareholders of these funds share profits of the company.