The Various Types of Equity Funds

Equity Funds and equity schemes are mutual funds that invest in stocks and can be managed either actively or passively; however one chooses to. These funds are also known as 'stock funds' and are categorised in accordance to the style of investment holdings in the portfolio and the company size.

These stock funds can be domestic or international and their size is determined by the company's market capitalisation. The investment style that is reflected in the fund's holding is made use of in order to categorise equity mutual funds.

There are various types of equity funds and each of them differs from one another. Therefore, depending upon the investment objectives, you can classify the types of equity funds and equity schemes in the following ways:

Large-cap Equity Funds

These equity funds invest the maximum portion in companies that possess a large market capitalization; hence, known as large-cap funds. This equity fund is renowned to offer stability and sustainable returns over a certain period of time.

Mid-cap Equity Funds

These types of equity fund invest in stocks of companies that are medium-sized, also known as developing companies. Similarly equity funds that believe in investing in stocks of smaller companies are known as small-cap equity funds.

Thematic Equity Funds

These equity funds are meant to be invested in securities of sectors such as pharmaceutical or IT. The performance of each of these schemes depends upon how well each of these industries is doing in the market. These funds promise you higher returns but at higher risks.

Multi-cap funds

These forms of equity funds and schemes invest into different sectors in order to reduce the risks associated with investments. Also known as diversification of investment, this process helps if some sectors are affected negatively in the market. This process is quite necessary in order to reduce the risk factor associated with investments.

Equity Linked Savings Scheme

This form of an equity scheme provides you with tax savings where you have the option of locking your funds for a period of three years.

Therefore, if you wish to invest in equity funds and schemes, then you should know that they come with a higher risk but you have a chance to earn better returns.

A Guide to Open Ended Funds

A fund that is not restricted to the number of shares issued especially during the conditions when the demand is high or low is known as an Open Ended Fund. Also, it is quite flexible since an investor is free to sell it back; thus, a majority of funds are known to be open-ended and are extremely convenient in terms of being an investment vehicle. If the investment manager realizes that the total assets have become too large to manage and execute, he/she will open the investment for newer investors rather than continuing with the existing ones.

In the meanwhile, a close-ended fund is one of the mutual funds in India that is fixed and only sells a particular number of units and the existing investors cannot exit the term until the scheme ends. The price is also affected by the demand and supply of fund units. Close-ended funds offer to repurchase the units which results in an avenue for more liquidity.

Although close-ended funds are free from worries related to the fund size and regular redemption, open ended funds are still better to deal with and have performed better than their counterpart. The average return of a close-ended fund is about 7.38, 6.28 and 2.83 percent whereas open-ended funds have generated about 6.54, 8.86 and 3.36 percent of returns (same time period, i.e., a year).

The most preferred fund: Open-ended

A few examples would help you identify the kind of fund you would invest in. On the 22^nd of March, HSBC Unique Opportunities Fund, a close-ended fund converted into an open-ended fund due to the fact that it was unable to return the principal amount against the greater returns provided by an open-ended fund.

Performance issues

Open-ended funds have always outperformed its counterpart and peers especially during the market fall in the year 2008 all the way up to 2009.

NFO

The main purpose of launching close-ended fund schemes were to maximize investment and receive gains in a short duration after which one could make a hasty exit as soon as the scheme reopens for subscription. This was due to the fact that long term investors had to pay heavy duty; therefore, open ended funds were a way to eradicate the high costs.

Premature withdrawals

One of the sole reasons for the suffering and near demise of close-ended funds was the fact that there arose monthly redemption's and premature withdrawals were penalized which resulted in withdrawals from the investors. If there is a rush for redemption, then mutual funds managers need to sell liquid stocks and the market only constitute of illiquid stocks, which require some time recover. Due to the premature redemption's, close-ended fund suffer because new money is not allowed to enter the fund.

Also, a lack of monitoring affects close-ended funds, turning open-ended funds into a more desirable option for investors.  Also, there is nothing unique to offer from a close-ended fund’s point of view, therefore it is advisable to choose an open-ended fund.

Top Four Small and Mid Cap Funds to Choose This December

Savings play an indispensable role in your life and as a result many of you may look forward for different avenues of investments. Among the commonly purchased investment products are bank term deposits. However these products offer conservative returns. So, several investors are always looking forward for lucrative opportunities of investments.

Small and mid-term funds offer the privilege of lucrative investments while hedging investment risk. With the changing economic conditions in India, such schemes are becoming popular among masses. After comparing several schemes we have managed to shortlist the top four small and mid-cap funds.

DSP BlackRock MicroCap Fund

With a consistent double-digit return rate for the last five years, DSP BlackRock has managed to captivate the attention of investors since a long time. Though the Assets under Management for this scheme are less than 2,000 crores, still it offer better redemption as well as growth to investors. Courtesy to the capabilities of Vinit Sambre and Jay Kothari, this scheme has managed to perform so well.

HDFC MidCap Opportunities Fund

This fund has completed a positive track record of seven long years and holds top growth and value stocks in its portfolio.  The fund manager focusses on the stocks that have the ability to multiply their earnings by 15 to 20 percent. With assets under management of almost 2802.96 crore, this fund has become popular among masses not only for better gains, but also for versatile redemption facility.

ICICI Prudential Discovery

This began its functions in the year 2004 and has had a remarkable run in the market. This company has a good cash flow and low leverage while the fund manager tries to strategize and capture the bullish economic cycle of the underlying companies. With more than Rs. 2830 crores of assets under management, this fund has been offering consistent positive results for the last five years.

Franklin India Prima Fund

It has a corpus of Rs 867. 36 crore and has been generating a positive cash flow across all business cycles.  Managed by popular fund manager R Janakiraman since 2008, this fund has been offering positive returns with almost consistent growth rate of 15%. With 61 stocks under the roof, this fund is one of the most popular funds among investors.

Three Reasons to Invest in Fixed Income Schemes

What are Fixed Income Schemes?

Fixed Income Schemes invest in securities such as bonds, debentures, government securities, money market instruments and other similar instruments. The main purpose of such schemes is to invest is to generate a steady income against a balanced investment risk.

Fixed Income securities carry minimum investment risk as the main motive is to offer the promised returns to the investors. On the other hand equity securities have no such obligation to pay back the investors. Though the promised return is comparatively higher, equity funds have high risk of investment loss. So, conservative investors prefer going with fixed income schemes.

Following are a few schemes that offer investment benefits to investors:

More tax efficient

Fixed Income Schemes are more tax efficient than several other investment instruments. After a year, the invested income is always treated as a long term capital and is taxed at 10% or 20%. If you hold the debt fund for a longer duration or period, then the indexation benefit is higher. For instance, DSPBR Banking & PSU Debt Fund offers extensive tax benefits to investors by heavily investing in debt and money market instruments, which have special tax exemption.

Better returns

The longer the period of investment, higher are the returns. Funds that invest in long term bonds are not applicable to changes in rate which occur in short-term debt funds’ investments. For instance, DSPBR Government Securities Fund has a longer lock-in period and directly invests in GOI bonds. As lock-in period is longer, it offers better returns as compared to other short term funds.

More flexible

Fixed Income Schemes are more flexible than others and a person can invest small amounts in them every month. Certain schemes primarily invest in money market instruments that offer combined benefit of liquidity and growth. For instance, DSPBR Money Manager Fund has a portfolio of money market instruments that offer better gains than regular debt instruments.