There are over 5,500 publicly listed stocks on Indian stock market. Out of this about 2500 stocks are traded actively on a daily basis. It would be extremely difficult for retails investor who has to have Time, Knowledge and Tools to analysis the data of all these stocks to select his set of Shares, where he would like to invest his surplus to create wealth over a longer period of time.
Mutual Funds, would be the perfect choice for retail investors to take part in Equity as an asset class where the Investor uses the Professional Management of the Asset Managers to manage his money.
As a part of regulation, SEBI has categorised Equity Mutual Funds into various categories to help Investor select the most suitable fund based on his Risk appetite and Time to create the required Corpus.
Important classification is on “Market capitalisation”, which is the number of Shares of the company multiplied by the price at which it is transacted.
These Mutual Fund schemes invest into the Top 100 companies by Market Capitalisation. Since these are the top 100 companies, investor can expect a stable growth over a long period of time.
Minimum 80% of total assets have to be invested in equity & equity related instruments of large cap companies
The companies whose market capitalisation is from 101 to 250 is the subset of shares, where these Midcap schemes can invest into. These 150 companies can be looked at future Large cap companies and Investors can invest into these shares and capture the growth potential of these companies.
Minimum 65% of total assets have to be invested in equity & equity related instruments of Mid cap companies
Companies with market capitalisation rank above 250 are categorised as Small Cap. These are typically Schemes investing into smaller companies, where the investment is expected to be High risk and deliver High return.
Minimum 65% of total assets have to be invested in equity & equity related instruments of Small cap companies
The fund manager has the flexibility of choosing shares from Large / Mid and Small cap.
The scheme shall have investment of minimum 65% into Equity and equity related instruments.
These schemes would primarily focus on combining the advantages of Large and Midcap companies.
Minimum 35% of total assets have to be invested in equity & equity related instruments of Large cap companies &Minimum 35% of total assets have to be invested in equity & equity related instruments of Mid cap companies
These Schemes are Equity Mutual Funds, when invested into gives the investor the benefit of Tax Deduction under sec 80c of Income tax act 1961. These Investments are locked for 3 years from the date of Investment.
Other Categories of Equity schemes are;
- Value Funds
- Focused Funds
- Dividend yield
- Sectorial / Thematic
- Contra Funds
Schemes which invest into Equity and Debt and maintain an asset allocation of 65% in Equity and 35% in Debt. These Funds give a advantage of “Auto Piloted Asset allocation” for an investor. These fund also enjoy Equity Taxation.
For a moderate and conservative there are combination of Debt and Equity in various proportions like 70% in Debt and 30% in Equity, Debt Oriented Hybrid funds or the extent of Equity is based on predefined parameters which forms a popular category called “Balanced Advantage Funds”