Investment in mutual fund schemes is recommended to meet your brief-term, medium-term, and extended-term ambitions. But, there are a variety of varieties of MF schemes not just representing equity and debt assets but also on other parameters such as marketplace capitalization, and so forth. Take, for instance, the group of equity schemes which comprises of 10 distinctive categories of equity schemes. Similarly, there are 16 varieties of debt mutual fund schemes.
“There are several categories of equity mutual funds schemes based on which type of companies they invest in. For instance, large-cap funds invest in companies with large market capitalization, Midcap funds invest in mid-sized companies and small-cap funds invest in smaller-sized companies. Besides that, there are multicap funds investing in all three in different proportions as per their strategy – large, mid, and small sizes of companies,” informs Col. Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a economic organizing firm.
In addition, there are particular funds that invest only in a specific business or a theme. “There are thematic funds which invest in companies from a specific sector like Information technology, banking sector, health care or infra. One can also invest in international equity funds, which primarily invest in equity shares, ETFs etc of foreign markets,” adds Col. Govila (Retd).
10 categories of equity mutual fund
- Multi Cap Fund
- Large Cap Fund
- Large & Mid Cap Fund
- Mid Cap Fund
- Small-cap Fund
- Dividend Yield Fund
- Value Fund/ Contra Fund
- Focused Fund
- Sectoral/ Thematic
- ELSS
So, how to make a choice of the category and exactly where to invest? Some of them could be riskier than other folks and the volatility could be more in some of them. “On a relative risk basis, small caps funds carry higher risk compared to midcap funds which can themselves be considered riskier than large caps funds. Which one to take in what proportion in your portfolio will depend on this trio – your risk profile, future requirements (financial goals) and market conditions,” says Col. Govila (Retd).
Therefore, it is essential to know which category of MF scheme you are investing in. Knowing this will enable duplication of schemes and help in diversification of portfolio. It is not vital to personal schemes in all of the 10 categories of equity schemes rather aim to develop a portfolio with sufficient diversification commensurate with your danger profile. “For example, risk appetite implies ascertaining whether you have the appetite to invest in an equity fund that has a high risk, moderately high risk, or you would prefer to go for a low-risk mutual fund only,” informs Col. Govila (Retd).
Every equity fund category has its personal share of danger and reward. Your economic advisor will be in a much better position to recommend the correct mix but right here are some pointers. “If you want to keep it safe then large caps but if you want high risk- high reward then small caps. It should be a blend of everything. Personally, I would suggest 40% should be the lowest, 30% medium and 30% high. So, that way your portfolio gets balanced out,” says Rachit Chawla, CEO and Founder, Finway FSC.