Lesson #2: What Are Equity Mutual Funds?
Start Your SIP in Mutual Funds.
As we discussed in our Lesson #1 that there are two types of securities in which fund manager invests, Equity & Debt.
In this lesson, we will learn about Equity Mutual Funds, funds that invest predominantly in equity securities.
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Equity Mutual Funds
Equity Mutual Funds are the most popular type of funds among all other assets. In this fund, the pool of investment is invested in stocks of different companies.
Equity Funds have the capability to beat inflation over the long term. By investing in equity there is some sort of risk also, this risk is volatility risk.
Because the fund invests in stocks of companies and if the price of the stock of that company falls our investment value of the fund will also fall.
But, the good part is that the fund doesn’t invest in a single company, so the risk becomes lower.
Risk Mitigation
Fund Manager diversifies the fund portfolio by investing in different companies of different sectors in small proportions.
This means even if stocks of some companies may decline, the other companies in the fund can offset the losses.
Ideal Investment Period
You should only invest in Equity Mutual Funds if you are willing to invest your money for at least 7 to 10 years.
Any money that you need in less than 5 years, should not be invested in equity funds.
Equity Fund Categories
There are different categories of Equity Mutual Funds currently available for investments.
- Large Cap Funds
- Large & Midcap Funds
- Flexi Cap Funds
- Multi Cap Funds
- Mid Cap Funds
- Small Cap Funds
- Value Oriented Funds
- Equity Linked Saving Schemes (ELSS)
- Sectoral Funds
- Thematic Funds
All these categories of equity mutual funds have their own style of investing, which we will understand in detail in our upcoming lessons.
Conclusion
The investments that we do in Equity Funds are directly linked to the prices of stocks in which our fund has invested our money into. These investments are subject to equity market volatility risk.
You should not consider equity mutual funds if you are not comfortable with the volatility risk of equity markets and if you need your investments in less than 5 years.
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End of Lesson #2, Click here for Full Course.
Hi, I’m Managing Director at Gurpreet Saluja Financial Services where I help my investors to invest in mutual funds and achieve their financial goals. I’m also a Value Investor and here I write about Personal Finance & Investing.
