A sound diversified equity mutual fund is invested in companies of all types and across sectors and instruments. This fund is invested in companies regardless of their size, fame, brand or sector in which they are in. It also diversifies its investments across the stock market to enhance gains for you as an investor. These are offered by ULIPs, insurance plans and mutual funds of various types.
You should have a good idea of the companies that are listed on the stock exchange before you begin investing. These companies are of all sizes and categories. There are big companies or large corporations because of their large market capitalization. There are mid-sized companies too apart from small companies. Their capitalization in the market is also large, mid or small respectively.
Large-cap schemes are the ones that invest in big companies and they are less risky compared to other schemes. These schemes are suitable for you if you are a conservative investor and your risk appetite is low. If you are new to the stock market, this is good for you.
Small-cap schemes invest in small companies and the investments can be quite risky because these small companies are not known and their performance also is not well documented. Yet, investment in them could give you fantastic returns in the long run. If you have got the tolerance for risk and have the patience to wait it out, then you’re a suitable candidate for these investment schemes. The investment horizon for these schemes is about 7 years.
Midcap schemes invest in mid-sized companies and it can be moderately risky. These companies may not realize their full potential and that makes investment in them slightly riskier. Over a sustained time period, these mid-sized companies may turn out to be bigger and better, giving you handsome returns accordingly, provided you have the time and patience required. To invest in these schemes, you must have ample risk appetite and perseverance.
There are equity-linked savings schemes which are meant for investors looking for tax rebates under the income tax act. The tax deductions can go up to Rs 1.5 lakh. There is a lock-in period of a minimum of 3 years. There are diversified equity funds that invest across market capitalizations. It all depends on the view of the fund managers. Since the portfolio is spread across markets, these are less risky than mid-cap schemes. If you have moderate risk-taking abilities, then you can invest in this scheme.
Equity-oriented hybrid schemes as the name suggests, depend on the equity market and also debt instruments. These are basically a mixture of equity and debt. This is also known as a balanced scheme or fund due to its mixed or balanced portfolio. These funds are for those who are new to the market or who have lower risk appetite. Diversified equity funds invest in companies across sectors. This way it has got exposure to sustained growth across the economy. It is not fixed for any particular sector. The companies chosen for investment could be operating in diverse sectors like pharmaceuticals, engineering, automobiles, oil and gas, power, etc.