2. Equity Funds
Equity funds are created with the objective of generating long-term
growth and capital appreciation
Given that equity as an asset class may be volatile in the short term,
therefore its recommended that an investment in equity should always be with
long term horizon
Equity funds differ predominately in the manner in which they select the
market segments and stocks that would form the portfolio
3. Diversified Equity Funds
Diversified Equity Funds tend to invest across a broad range of equity
shares, with the objective of generating returns better than its
respective benchmark
Diversified equity funds are not biased in terms of the sectors they choose, the
size of the stock they select, or the investment style they may pursue
Investors, who like to hold a fund that invests in equity shares without any
specific bias, tend to choose diversified equity funds
4. Midcap, Small Cap and Micro Cap Equity
Funds
Midcap, Small Cap, and Micro Cap Equity Funds feature a bias
determined by the size of the companies in which they invest
Large companies tend to be well established in their businesses with stable growth
and earnings
The smaller companies tend to exhibit higher growth on earnings depending on the
business opportunity, ability to grow, management style, and profit margins
However, smaller companies tend to also feature a higher risk of inability to
withstand downturns, inability to scale up risk of business failures, and lower liquidity
in the stock market.
5. Thematic Equity Funds
Thematic Equity funds tend to choose their stocks based on a particular theme,
which the fund managers believe will do well during a given period of time, based on
their understandings of macro trends and developments
Infrastructure funds, commodity-stocks based funds focusing on companies in the
public sector, funds focusing on business driven by consumption patterns, and
service sector funds are all examples of thematic equity funds
These funds run a higher concentration risk compared with a diversified equity fund,
but may also offer a higher return if the themes they focus on tend to do better than
the overall market
6. Index funds
Index funds are passively managed funds where the fund manager does not
take a call on stocks or the weights of the stocks in the portfolio, but simply replicates a
chosen index
Replicating an index means holding all the same stocks in exactly the same
weightage as in the index
Investors who do not like to take a risk on the fund manager, but accept a return that
is associated with an index, choose index funds
Index funds are also popular since they cost less. The expense ratio of an index fund
is about 0.75% while a normal equity fund could be as expensive as 2.5%
7. Sector Funds
Sector Funds are equity funds that focus on a particular sector
They feature concentrated risks and are suitable for investors willing to take a view
on the performance of the given factor
Sector funds are available for sectors such as industry sectors, information
technology, banking, pharmacy, and FMCG
If the sector is expected to do well, given a confluence of favorable policy and
macro environment, funds tend to launch such sectors funds
Sector funds have a high level of concentration risks
Once you know what you want, what’s left is to just pick and choose! Here’s a presentation that guides you through the different types of funds. href="http://www.investmentz.com/default">types of funds </a>.