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Do you often wish that you had a chance to grow your money without analysing stock charts on weekends? If yes, equity mutual funds might be your shot at something big! You get bonuses of inflation-beating returns and the expertise of professional fund managers with equity funds. They have become one of India’s most sought-after options for long-term investors.
The quick read here will be enough to clear out all your doubts regarding equity funds—whether they are questions like “what is equity fund?”, “how to invest in equity smartly?” and so on.
Why Everyone’s Talking About Equity Funds
Picture this: You invest ₹500 a month, sip your coffee, and let the markets (and experts) do the heavy lifting. That’s the appeal of equity mutual funds—access to stock market growth minus the stress of managing it yourself.
Historically, equity has outperformed most other asset classes. For example, the Nifty 50 TRI delivered a 13.25% annualised return over the last 20 years (as of June 2023). Not bad, right?
What is Equity Fund? A Simple Breakdown
Let’s start with the equity fund meaning in simple words. An equity is an open-ended scheme of mutual funds. It collects money from different investors and invests it in equity shares of companies. SEBI has made at least 65% of the fund’s assets mandatory for investment in equities or equity-related instruments.
The price of each unit of an equity fund is known as the Net Asset Value (NAV). The price fluctuates every day based on market performance.
So, what is equity fund investing all about? It is about long-term wealth creation through diversified exposure to the stock market. You can benefit from it even if you don’t have the time or expertise to pick individual stocks.
Types of Equity Funds
Different investors have different appetites for risk. That’s why equity mutual funds come in many flavours. Let’s look at a few key types:
- Large-Cap Funds: Invest 80 %+ in top 100 companies by market cap—ideal for stability.
- Mid-Cap Funds: Invest 65 %+ in companies ranked 101–250, balanced risk and return.
- Small-Cap Funds: Focus on firms ranked 251+—higher risk, potentially higher return.
- Multi-Cap Funds: Spread across large, mid, and small-cap stocks—offers flexibility.
- ELSS (Equity Linked Savings Scheme): A tax-saving fund under Section 80C.
- Dividend Yield Funds: Invest in stocks with high dividend payouts.
- Value Funds: Focus on undervalued companies with future growth potential.
- Focused Funds: Invest in a concentrated portfolio (up to 30 stocks).
- Sectoral/Thematic Funds: Invest in specific industries or themes—higher sector-specific risk.
These equity funds examples reflect different strategies—some aggressive, some defensive. The key is aligning them with your financial goals.
How Do You Earn from Equity Funds?
Returns in equity funds come from:
- Capital Appreciation: The value of the shares in the fund increases.
- Dividends: Periodic payouts by some companies, which the fund distributes.
Everything gets updated in the NAV, which fluctuates with the value of the fund’s market assets. Furthermore, even modest, regular contributions can substantially grow due to the effects of compounding.
Who Should Invest in Equity Funds?
Equity funds are ideal for:
- Investors with a long-term horizon (3–5+ years)
- Those with moderate to high-risk tolerance
- People aiming for retirement, child education, or long-term wealth creation
What equity mutual funds offer to first-time and experienced/seasoned investors?
- First-Time Investors: A simplified way to participate in stock market growth. They do not need to pick individual stocks or time the market.
- Seasoned Investors: These funds provide professionally managed, diversified portfolios. It reduces the need for constant monitoring and enables strategic asset allocation.
How to Invest in Equity: Your Step-by-Step Guide
The process of investing in equity through mutual funds is very simple, and it includes the following steps:
- Complete your KYC (Know Your Customer) process.
- Choose a reliable investment platform or AMC (Asset Management Company).
- Pick your fund based on your goal, time horizon, and risk appetite.
- Select the investment mode:
- SIP (Systematic Investment Plan) – Regular monthly investments starting at ₹500.
- Lump Sum – One-time large investment.
- Periodically check your fund’s performance, but don’t freak out over sudden declines.
Bonus Tip: Use SIP to benefit from rupee cost averaging and manage market volatility.
SIP vs. Lump Sum: What’s the Better Strategy for You?
You must know the difference between SIP and lump sum to make the correct choice when investing in equity funds. Here’s a quick breakdown of both approaches:
Systematic Investment Plan (SIP)
Pros:
- Suitable for salaried individuals or anyone with a regular income
- Minimises risk by averaging out market ups and downs (rupee cost averaging)
- Encourages disciplined investing
- Low entry point (start with as little as ₹500/month)
Cons:
- Might miss big gains in a rapidly rising market
- Takes time to build a large corpus
Lump Sum Investment
Pros:
- Useful when you have idle funds or a windfall
- Captures full market gains if invested at the right time
- Simple—just invest and let it grow
Cons:
- Higher market timing risk
- Emotional stress if markets drop soon after investing
Which One Works Better When?
| Scenario | Better Option |
| Markets are volatile or at a high | SIP – reduces entry risk |
| You’ve received a bonus or inheritance. | Lump Sum – faster capital deployment |
| Long-term financial planning (retirement, education) | SIP – consistent wealth creation |
| Markets are low and likely to rise | Lump Sum – maximises growth potential |
The Power of Professional Management
Experienced professionals manage equity mutual funds. Fund managers and analysts:
- Study company performance and industry trends.
- Buy/sell stocks based on detailed research.
- Adjust portfolios in response to market shifts.
Their expertise means you don’t have to worry about when to buy or sell—you’re in good hands.
Why Equity Funds Are a Long-Term Game
Yes, markets are volatile. But if you’re patient, equity funds reward you. Over time, market ups and downs smooth out. Staying invested allows you to:
- Beat inflation
- Build a sizeable corpus
- Meet major life goals (retirement, house, child education)
In short, time in the market beats timing the market.
The Tax Angle: Know Before You Earn
Here’s how equity funds are taxed in India:
- Short-Term Capital Gains (STCG): 15% tax on profits if sold within 1 year.
- Long-Term Capital Gains (LTCG): Gains over ₹1 lakh (held over 1 year) are taxed at 10%.
- Dividends: Taxed at 10% at source via Dividend Distribution Tax (DDT).
Want tax savings, too? Consider ELSS funds for benefits under Section 80C, allowing deductions up to ₹1.5 lakh.
Final Word
Investing in equity funds isn’t just for finance geeks or market experts. It is for anyone with a goal and a little patience. Choose wisely. Stay consistent. Trust the process.
Equity mutual funds can turn your disciplined investment into long-term prosperity while helping you sleep peacefully at night (without obsessing over stock prices).
Start small. Start smart. But most importantly—start.
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