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The mutual funds regulator of India – SEBI (Securities and Exchange Board of India) have segregated equity funds into 12 categories to help investors with product differentiation. In this article, we will understand the different types of equity funds available to an investor in India. Read on to understand the types of equity funds in India.

Types of equity mutual funds

Here are the different types of equity funds offered to an investor:

  1. Based on market capitalisation
    Basis the net capital of a firm, equity mutual funds are further sub-categorised into:
  2. Large-cap equity funds
    These mutual fund schemes are mandated to invest in the stocks of companies that rank between 1 to 100 in terms of market cap. These equity funds are known to be the least risky mutual fund investments as compared to other equity categories.
  3. Mid-cap equity funds

SEBI mandates these mutual funds to invest in the stocks of companies that rank between 101 to 250 in terms of market cap. These mutual funds are riskier than large-cap funds but comparatively less riskier investments than small-cap equity funds.

  1. Small-cap equity funds
    SEBI mandates small-cap mutual fund schemes to invest in the stocks of companies that rank above 250 in terms of market cap. Though these funds are considered as one of the riskiest investments as compared to other equity categories, these funds also offer investors with the potential to enjoy substantial returns on their mutual fund investments.
  2. Large and mid-cap equity funds
    As per SEBI’s latest categorisation rules, large and mid-cap funds are mandated to invest a minimum of 35% of their investments in equity and equity-linked instruments of mid cap and large cap funds.
  3. Multi-cap equity mutual funds
    These schemes invest in stocks across all market capitalisations, i.e., large, mid, and small-cap companies. The fund manager of multi-cap funds has the leeway to determine the proportion basis prevailing market situation.
  4. Based on investment style
    Basis investment style, equity funds can be categorised into two types – actively managed equity funds and passively managed equity funds. Under passively managed funds, the fund tries to mimic a certain index or benchmark. These funds enjoy low management cost as there is no need of a fully functional team of fund manager, analysts, and researchers to choose the right type of investment.
  • Based on tax benefits
    ELSS, short for equity-linked savings scheme is a tax-saving mutual fund that provides tax benefits to investors. SEBI mandates ELSS mutual fund schemes to invest a minimum of 80% of their assets in equities and equity-linked securities. ELSS funds allow investors to enjoy tax benefits of up to Rs 1.5 lac per annum. An investor can save up to Rs 46,800 by investing in these mutual fund tax saver schemes. These funds have a lock-in duration of three years.

Before you decide the right type of investment for your portfolio, make sure that it aligns with your risk profile, financial goals, and investment duration. Equity mutual funds are ideal for investors with a long term investment horizon. Happy investing!

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