Equity Funds

Fund Objectives: Best equity mutual funds aim at accumulating wealth through strategic investments. The stock picking is based on investing style, which can be value investing or growth investing. Value investing involves picking undervalued stocks whose price will rise, eventually leading to a profit.

Fund Types: Equity funds are further divided into purely large-caps/mid-caps/small-cap funds. Small-cap funds and mid-cap funds have high risk-high return potential than large-cap mutual funds. Then there are multi-cap funds, which invest across stocks of all market capitalization to maintain an optimally diversified portfolio.

Risk: Equity funds face market risk, which happens to be the most significant one. The equity funds are affected by the movements of an underlying benchmark like Nifty or Sensex. The overall rise and fall in the index lead to the fluctuations in the value of equity funds. Such volatility is higher than that experienced by debt funds or money market funds.

Cost: Equity funds charge an expense ratio to manage your investment. SEBI has mandated the upper limit of expense ratio to be 1.05%. Actively-managed equity funds have a higher expense ratio as compared to index funds.

Investment Horizon: Equity funds are suitable for individuals who are having a long-term investment horizon. Usually, the fund experiences a lot of fluctuations during the short-run. This fluctuation averages out in the long-run of say, more than five years. The fund is, thus, able to give returns in the range of 10%-12%. Those who choose best equity mutual funds need to be prepared to stick around for at least for the said period to enable the fund to realize its full potential.

Financial Goals: Investing in equity mutual funds is ideal for achieving long-term financial goals, such as wealth creation or retirement planning. Being a high-risk and high return haven, these funds are capable of generating enough wealth, which may help you retire early and pursue your passion in life.