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What is an Equity Mutual Fund?

what-is-an-Equity-mutual-fundEquity mutual funds are those funds that invest in equity or stocks. In India, it is mandatory to invest 65 per cent money of a mutual fund scheme in equity or equity-related investments for taxation purpose. This is the reason for international funds investing in stocks and yet not countable for equity mutual fund, hence not eligible for tax. As they don’t put money in Indian stocks, they are treated as debt and taxed like debt schemes.

The equity mutual fund comprises of so many categories but as per SEBI norms, only 10 of these are considered. These are:

Multi-Cap Funds: This category can invest across sectors and market capitalisation just like Large cap, Mid Cap and so on in the trend.

Large Cap Funds: These schemes have to invest at least 80 per cent of the scheme money in the top 100 companies by market capitalisation or large-cap companies.

Mid Cap Funds: Under these schemes, at least 65 per cent of their assets must invest in mid-cap companies stock. These are referred to the companies that rank between 101 and 250 according to their market capitalisation.

Large & Midcap Funds: These funds are bound to invest at least 35 per cent of their assets in large and 35 per cent in mid-cap stocks.

Small-Cap Funds: This scheme has to invest at least 65 per cent of their assets in small-cap companies stocks, defined by market capitalisation ranking of less than 251.

Dividend Yield Fund: Under these schemes, a minimum of 65 per cent needs to be invested in dividend-yielding stocks.

Value Funds: This scheme goes for a mandatory investment of at least 65 per cent if their assets in stocks based on value investing principles.

Contra Funds: These funds works on contrarian investment strategy and must invest 65 per cent of their assets on stocks based on this strategy only.

Focused Funds: Focused funds invest in a portfolio consisting of a maximum of 30 stocks. Most of the focused funds generally follow a mid-cap strategy.

Thematic or Sectoral Funds: As the name suggests, this fund invests their 80 per cent assets in a dedicated theme or sector.

ELSS Funds: Equity Linked Saving Schemes also known as tax saving mutual funds have a mandatory 3 years lock-in-period. Investments in these schemes can exempt you from tax deductions up to Rs 1.5 lakh under section 80C.

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