Mutual Funds Have Became So Popular These Days, Mutual Funds Have Also Seen Lakhs Of Crores Inflows. There Are Different Types Of Mutual Funds, But The Most Famous Type Of Mutual Fund For Retailers Is Equity Mutual Fund, Equity Mutual Funds Will Delivery Highest Returns Compared To Other Mutual Funds Like Debt And Hybrid Mutual Funds. At The Same Time Equity, Mutual Funds Are Riskier Than Other Type Of Mutual Funds.
Assets Under Management Of Indian Mutual Fund Industry As Of June 2021 Stood At Whooping 33,66,877 Crore.
In This Article, You Are Going To Learn About Are Equity Mutual Funds, Different Types Of Equity Mutual Funds, And Taxation For Equity Mutual Funds.
What Are Equity Mutual Funds ?
As The Name Suggests In Equity Mutual Funds, The Funds Are Invested In Equity Segment. Like In The Shares Of Different Companies, The Fund Manager Will Actively Manage These Funds. The Fund Manager Tries To Offer Good Returns By Spreading His Investment Across Different Companies And By Diversifying The Portfolio.
Types Of Equity Mutual Funds ?
There Are Different Types Of Equity Mutual Funds To Choose From, Let Us See One By One.
Equity Mutual Funds Based On Market Capitalization
Large Cap Funds
In Large Cap Funds, 80% Of The Total Funds Are Invested In Large Cap Stocks ( Top 100 Companies By Market Cap Are Considered As Large Cap ).
For The Remaining 20% Fund Manager Will Have Flexibility, So The 20% he Can Invest Where Ever He Sees An Opportunity.
-> 80% In Large Cap Stocks, 20% Flexibility.
Mid Cap Funds
In Mid Cap Funds 65% Of The Total Funds Are Invested In Mid Cap Stocks ( From 101 To 250 Companies By Market Cap Are Considered As Mid Cap ).
For The Remaining 35%, Fund Manager Will Have Flexibility, These Scheme Will Offer More Returns Then Large Cap Funds But Also More Riskier Then Large Cap Funds.
-> 65% In Mid Cap Stocks, 35% Flexibility.
Small Cap Funds
In Small Funds, 65% Of The Total Funds Are Invested In Small Cap Stocks ( From 250 And Below Companies By Market Cap Are Considered As Small Cap ).
For The Remaining 35%, Fund Manager Will Have Flexibility, This Scheme Offers More Returns Then Large Cap And Mid Cap Funds, But Are Also More Riskier And Volatile Then Large Cap And Mid Cap Funds
-> 65% In Small Cal Stocks, 35% Flexibility.
Large And Mid Cap Funds
In Large And Mid Cap Funds 35% Of Funds Are Invested In Large Cap Stocks And Another 35% In Mid Cap Stocks.
But For The Remaining 30%, Fund Manager Will Have Flexibility. These Scheme Will Offer More Diversification And Better Returns Then Large Cap Funds.
-> 35% In Large Cap Stocks, 35% In Mid Cap Stocks, And 30% Flexibility.
These Are All About Equity Mutual Funds Based On Market Capitalization.
Equity Mutual Funds Based On Investment Strategy
Sectoral Or Thematic Funds
In Sectoral Or Thematic Funds, The Funds Are Invested In A Particular Sector. If It Is Pharma Fund Then The Total Funds Are Invested In Pharma Stocks Or If It It Technology Fund Then The Total funds Are Invested In Technology Stocks.
These Type Of Funds Carry Higher Risk Since They Focus On A Specific Sector Or Theme.
Focused Funds
In Focused Funds, The Funds Can Be Invested In Either Mid Cap, Small Cap Or Large Cap Stocks But With A Maximum Limit Of 30 Stocks.
Contra Funds
In Contra Funds, The Funds Are Invested In Undervalued And Fundamentally Good Stocks At Lower Prices Which Are Ignored By The Market. By The Assumption These Stocks Will Recover In Long Term When The Market Recognizes These Stocks.
Multi cap Funds
Multi-Cap Funds Are Also Same As Focused Funds. The Funds Can Be Invested In Either Mid Cap, Small Cap, Or Large Cap Stocks But There Is No Maximum Limit Of 30 Stocks In Multi-Cap Funds.
Value Funds
In Value Fund, The Maximum Funds Are Invested In Undervalued Stocks. There Are a Lot Of Companies In Stock Market Which Are Undervalued And Trading At Discount Price.
So The Fund Manager Will Find This Type Of Undervalued Stocks And Invests Maximum Funds In These Stocks.
Dividend Yield Funds
In This, The Maximum Funds Are Invested In Stocks Which Are Giving Dividends And In High Dividend Yield Stocks.
Index Funds
Index Funds Just Track An Index, Index Funds Are Passively Managed, Unlike Other Equity Funds Which Are Actively Managed.
For Example In the Nifty Fund, The Funds Are Invested Only In Nifty 50 Stocks. The Funds Are Equally Distributed To All The Stocks In That Index As Per Their Weightage In Index.
More About Index Funds READ HERE.
ELSS Funds
Equity Linked Savings Scheme ( ELSS ), ELSS Are The Only Equity Scheme Which Offers Tax Benefits Of Up to 1.5 Lakh Under Section 80C Of Income Tax Act.
This Is Also the Same As Multi-Cap Funds, But The Only Restriction Is 80% Of The Funds Are To Be Invested In the Equity Segment.
But For ELSS There Is A Lock-In Period Of 3 Years.
Taxation Rules Of Equity Mutual Funds
The Taxation Rules For Equity Mutual Funds Are As Follows.
Capital Gain Tax For Equity Mutual Funds
If You Hold The Scheme For Less Than One Year, Then It Is Considered As Short Term Capital Gain STCG. STCG Is Taxed At 15%.
If You Hold The Scheme For More Than One Year, Then It Is Considered As Long Term Capital Gain LTCG. For LTCG There Are No Taxes Up To 1 Lakh, For Above One Lakh Profit It Is Taxed At 10%.
For Example In the Case Of LTCG If Your Profits Are 3 Lakhs, Then You Need To Pay a 10% Tax For Only 2 Lakhs, 1 Lakh Is Exempted.
Dividend Distribution Tax ( DDT )
DDT Is 10%, When Mutual Funds Pays A Dividend, The Mutual Funds Deduct 10% As DDT And Then Pay Us The Remaining Dividend Amount.
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