Equity Funds: Everything You Need To Know

Equity Funds are a type of mutual fund that has recently gained huge popularity. Since the beginning, mutual funds used to be one of the investors’ most chosen investment sectors. The mutual fund has evolved and changed a lot with time, and the equity fund is a fine example of mutual fund evolution.

Any mutual funds, including equity fund investment, requires proper study and informed discussion-making to avoid market investment-related risks. Equity funds come in different types, and everyone has unique characteristics. And, if you are a first-time into investments, then it can be difficult for you to choose the right type of equity fund to invest. Here, we will share everything you need to know about equity funds before you invest.

What are Equity Funds?

Knowing the meaning of equity mutual funds will help you to make better investments. The name is quite expressive; it means investing in company shares or stocks for high returns. The company funds are spread across the market with different capitalization sectors in such investments. Equity mutual fund investments have the most risk but offer high returns that no other mutual fund can provide, whether debt, deposit or hybrid.

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Also, the potentiality of high investment returns is why many people opt for these mutual fund investments.

Different types of Equity mutual funds   

Equity mutual funds divide into several groups depending on the market type, investment type, and much more. Below we will discuss different types of Equity funds in detail.


  • Large-cap funds – In such funds, companies offer a large section of stocks in the investment market ( more or around 80% of total company stocks). These companies are called large-cap companies and are well-established in the market. Also, large-cap funds have more stable returns than other equity mutual funds.
  • Mid-cap-funds – Mid-cap-funds offer around 65% share or stock of the company for investment. The companies that offer such funds are known as mid-cap-funds. Mid-cap-funds are volatile but also offer high returns than large caps.
  • Small-cap funds – Small-cap funds usually offer 65% of the companies’ total share in the equity market. Many companies fall under this category, are more volatile than mid-caps, and offer higher returns.
  • Multi cap-funds – Multi cap-funds offer 65% of company share investment in large, mid and small caps.
  • Large and Mid-cap funds – It is a unique blend of funds that offer 35% of large and 35% of mid-cap-fund investments. They have low volatility and good returns.

Investment type-based

  • Passive investment – In this investment, a segment or market index will determine where the schemes will invest. A fund manager cannot decide it on their own.
  • Active investment – Here, the fund manager selects the stock they find suitable for investment and invests in it.


  • Sector and theme-based investment –  Sector-based investments focus on specific sectors in the equity market. Here, some schemes may focus on pharmaceuticals; some focus on BFIS and some on IT.
  • While theme-based fund schemes focus on specific themes like emerging companies and international or regional themes, both theme and sector-based fund schemes have higher volatility as they only concentrate on specific sectors or themes.
  • Contra equity funds – these funds search for underperforming company shares and buy them at low rates depending on the assumption of long-run high returns.
  • Equity-focused schemes – in these schemes, 30 top companies (with the highest capitalisation)are chosen for investment at the scheme’s launch.


  • ELSS or Equity linked saving scheme – These equity schemes offer benefits of tax returns.
  • No-tax savings equity – All equity schemes fall under this category except ELSS.

How do Equity Mutual funds work?

Without knowing how a scheme works, you cannot invest in it. Such investments contain a higher risk of loss. In Equity mutual fund schemes, companies invest more or around 65% of their assets in various equity market companies’ shares or stock. These invested assets allocation will then be lined with the investment objective.

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Depending upon current market conditions, the investments are made in large, mid or small-cap funds. The fund manager buys or sells stocks, evaluates the equity segment and decides the proportion for better investment returns.

Who should opt for Equity investments?


Suppose a market investor has proper knowledge about the changing patterns of the investment market and is well-experienced in calculated risk investments. In that case, they can invest in equity mutual funds because these types of investments involve high volatility but possible massive returns.


Newcomers also can invest in equity schemes. If you are new to market investments, you can choose large-cap funds with lower risks and stable returns. Most leading or top companies have their share in this category.

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What are the advantages of investing in Equity mutual funds?

Different investment modes – Based on your capital size or financial state, you can invest with either a Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP).

Tax benefits – With equity fund schemes like ELSS or Equity Linked Savings Scheme, you can benefit from tax returns.

A simple way of investment – Equity investments are the easiest and hazard-free. You do not need any paperwork to enter the market or make an investment. You can update or modify your investment portfolio through your Laptop, PC or smartphone.

Diversification – Diversification is another benefit you can get when you invest in Equity; you get diverse options to choose from. Well-diversification is essential to reduce investment risks and ensure good returns


Ownership – Another additional benefit of investing in equity mutual funds is gaining ownership of the companies. When you buy a share of a company, you become a part or partial owner of the company and can exercise some ownership power.

Dividend income – You can get the company’s investment appreciation and surplus profit when you invest ( which means you buy their company shares).

Lesser liability -Investing in an equity fund also lessens your responsibility yet offers good returns. So, when you invest in Equity, you do not need to take responsibility whether the company faces bankruptcy or other evident crises. You need to take the liability of your investment, not the entire company’s condition.


Equity funds are considered a high-risk investment sector. But it also offers the highest possible investment returns. You can ensure a low-risk investment with good returns if you have good knowledge of the investment and its changing patterns. Also, you can opt for professional help to help you make the right investment if you are unsure about the market changes. 


Q : What are the most reliable Equity fund Schemes for budding investors?

Large-cap Funds are ideal for budding investors as they offer stable returns and lower risks than other equity funds.

Q : Can I get professional help for investing in equity mutual funds?

Yes, you can get Professional help for investing in these funds. The fund Managers can assist you in making proper investments with the help of a team of market researchers.

Q : Do I need a bank account to invest in Equity mutual funds?

Yes, you need a bank account, an Aadhaar card and a PAN card.

Q : Can I withdraw my investments anytime I wish?

Equity mutual funds offer open-end schemes so you can withdraw your investments anytime. They only restrict withdrawals in certain special circumstances.


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