General, Investment, Mutual Funds, Stock Market

EQUITY MUTUAL FUNDS

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Mutual Fund is pooling of money from different interested and potential investors and investing it in various debt and equity related securities. Mutual funds are of many types and many schemes are included and the Equity funds are one of the popular types. The gains or losses arising from the price drop or rise in prices of these shares in the market decide the performance of the mutual fund. The word equity refers to the shares and stocks and equity mutual funds are the mutual funds that are invested in market securities and stocks. As these are invested in stocks it is also called as “Stock Funds”. Equity funds are allowed to charge up to 2.25% per annum of the money it manages as its expenses, by law. The amount of money managed fluctuates everyday; the fund deducts a small portion of money every day that comes up to an annual deduction percent as mentioned above. Investor has the facility to buy and sell number of units he holds and there is no lock in period. Some funds allow entering and exiting the market freely but some allow the entry but not the exit ex. ELSS.

Equity mutual funds are divided categorised on the basis of company size, the investment style of the holdings. The size of market is determined by the market capitalisation.Market capitalization indicates the size of the company. The size of the company can be Mega cap, large cap, mid cap, Small cap, Micro cap and Nano cap. It is calculated by multiplying the number of shares of company outstanding with the market price of each share or stock.

  • Market Capitalization = number of outstanding shares * market price of share.

Equity funds are ideal investment tools for investors who do not possess a large capital to invest. Moreover, these funds are generally treated as practical investments by most people. Reduction of risk resulting from the funds scheme, diversification, and small amount of capital required for the purchase of shares in equity fund these qualities make the funds most suitable for small individual investors.

Diversification of capital of small investors without burdening every investor with large capital requirements is its biggest advantage. A more diversified fund means that there is less effect on individual. The price of an equity fund is based on the Net Asset Value (NAV) less its liabilities.Net Asset Value(NAV) is the book value of the fund it means it t is the difference between the assets and liabilities if the mutual funds.

*Price of Equity fund = NAV – liabilities

The equity funds are regulated by the government and are managed by the professional managers (qualified individuals) and their past performance is a matter of public record.

As of 2016 there were 9500 mutual funds available in the market, it can be any market sector like technology, finance etc and be any specific stock exchange like domestic or foreign and be any income or growth stocks, and can be depending on risk factor or a specific interest group there are equity funds for every type and characteristic that one can match with their requirements and risk profile. Some funds search for stocks that will pay good returns and some funds search for capital appreciation. Usually people prefer mutual funds over equities for the following reasons like:

  • Instant and cheap diversification.
  • Efficient risk management.
  • Comparatively low transaction rates.
  • Innovative models for investment and withdrawal.

Returns:

Mutual funds offers investors a moderate returns after a specific period of time while the equity funds can bring high returns depending on the market conditions over a short period of time. Only those who have in depth knowledge of volatile market conditions can invest in equities check out https://www.loansgreen.co.uk/easy-loans/ best easy loans online.

Risk:

  • In the sense of risk, mutual funds are considered as safer than the direct equities investments and they also provide great convenience to the investors.

For the individuals who prefer a low return than facing the risk of fall of market can opt for Mutual Funds than the Equity Mutual Funds as these are of high in both risk profile and rate of return depending on the performance of the mutual funds and the Net Asset Value(NAV).Finally, the investment should be made in the funds with a clear objective and proper knowledge of the portfolio of funds.

 

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CA Rachit Jain

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