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Equity as an asset class has the poten�al to offer infla�on-bea�ng returns that results in real returns. Inves�ng in equity over the long term helps build personal wealth and can lower your reliance on earned income for sustenance. However, equity inves�ng requires skill and experience which most lay investors find challenging. A suitable way of inves�ng in equity is through equity funds offered by mutual funds.

What is an Equity Mutual Fund?

An equity fund invests predominantly in shares of companies (65% or more of its total assets are invested in equity or equity related instruments). The remaining is invested in debt or money market instruments. Equity funds can be categorized based on the market capitaliza�on of the company (market capitaliza�on is computed by mul�plying the number of shares issued by the company by its current market price), the investment style or geography. Examples of mutual funds are large-cap funds, equity growth funds, Index funds, etc.

How do Equity Mutual Funds work?

For an investor, inves�ng in equity funds simply requires him to fill in the applica�on form, complete the Know-Your-Customer or KYC requirements and fill in the cheque for the investment amount or transfer funds online to the mutual fund to make his investment in the mutual fund. The rest is taken care of by the fund. However, it's important to understand how the mutual fund actually manages your investments.Ÿ In Equity mutual funds pool the money collected from investors is invested in por�olio consis�ng of

equity or equity related schemes. Stocks are selected based on extensive research and analysis by the fund management team of the mutual fund.

Ÿ The mutual fund issues units (which are similar to shares) to its investors in propor�on to their

What is an EquityMutual Fund?

Benefits of Equity Funds

investments in the fund.Ÿ The price of each unit is represented by its Net Asset Value (NAV), which is the current market value

of total assets of the fund minus liabili�es, divided by the total number of units issued.Ÿ The NAV of the fund fluctuates with the change in the prices of the underlying equity securi�es and

is updated every day a�er the market closes.

Benefits of Equity Mutual Funds

Equity funds offer a number of advantages to investors. Here are some key ones:Ÿ Professional exper�se: Equity funds are an ideal investment vehicle for investors who are not well-

versed with the equity markets. Successful equity inves�ng entails in-depth research and knowledge which many individual investors lack. It is therefore recommended to invest in equity funds where the investments are managed with the exper�se of a professional fund manager.

Ÿ Diversifica�on: An equity fund invests in several stocks and thereby provides the benefit of diversifica�on to its unit holders. By inves�ng a small amount of money, a unit holder can gain exposure to a broad spectrum of stocks. Concentra�on risk, which arises when there are very few stocks in a por�olio, can be minimized by inves�ng in an equity fund. When the por�olio has a large number of securi�es, adverse price movement in one par�cular stock will not have a large impact on the por�olio.

Ÿ Transparency: The mutual fund industry is closely regulated and has stringent repor�ng requirements to safeguard the interest of the investors. Mutual funds are required to published the fund's complete por�olio once a month and publish the NAV of the fund on each business day.

Ÿ Liquidity: In case of an open-ended scheme, if an investor wishes to exit his investments, he can redeem his units to the mutual fund and he will receive his money back within 3 to 5 business days.

Ÿ Small �cket size: An investor can gain exposure to a vast range of equity securi�es by inves�ng as li�le as Rs. 500 into an equity fund.

Who should invest in Equity Mutual Funds?

Equity funds are suitable for long-term investors looking for a�rac�ve returns by taking on fair level of risk. If you have a 5 to 10 year investment horizon, equity funds can be the right choice as there will be ample �me to beat the vola�lity associated with ups and downs in the equity market. If you are looking for steady returns, you can invest in large-cap equity funds which invest in well-established businesses and provide a moderate-to-high rate of return. Investors looking for higher growth can venture into mid and small-cap funds which can provide exponen�al returns during market booms.

Building a well-diversified equity por�olio requires �me, skills and a large capital outlay. You can use the mutual fund route to build your equity investment por�olio with the help of skilled and professional fund managers at a nominal cost.