The type of mutual funds that invests a larger part of its investments in equity or the shares and stocks of a company are called equity funds. The stocks could be from those companies listed in the Stock Exchange of India or even international stocks spending on the funds’ investment structure. As per SEBI’s mandate, a mutual fund can be called an equity fund only if at least 65% of its investments are in equity.

There are various types of Equity funds:

• Active and Passive Funds: Equity funds may be actively or passively managed. In an actively managed fund the fund manager does the research on the companies in the holdings of the fund, performance of the mutual fund and also researches the best stocks in the market to invest in. By comparison Passive funds are not managed as actively. The Passive funds reflect a market index, say BSE sensex or the Nifty 50.
  
  
• Equity Funds by market capitalization: Equity funds invest in stocks of companies. Based on the market capitalization of the companies in their holdings, the equity funds can be categorized as Large cap, mid cap or small cap funds. The Large cap equity funds invest in the top 100 stocks listed in the stock exchange. The Midcap equity funds are those that invest in the 101 to 250 place in the Indian stock exchange. The small cap funds are those that invest in companies that feature below 250 top companies in the stock exchange. Some equity funds invest in a mix or all the caps.

• Equity Funds by Sector: Some mutual funds invest in stocks of a particular sector and try to gain profits of the specific theme or sector. These funds could invest in power, real estate or pharma, banking, technology etc.

As you can see, there are a variety of equity funds to suit every type of investor. As such if you are looking for the high potential of growth from equity markets, the convenient way to gain an exposure to the equity returns is through equity mutual funds.

Investing in stocks of companies comes at a huge cost if you want to buy individual shares of companies. In equity mutual funds you can own the shares of multiple companies with a small investment of even Rs 500. Once you start regular investments in the equity funds of the mutual funds you will see your money grow and your financial goals being met.

Equity funds should be invested in for the long term. Only when you stay invested for at lest 3-5 years can you see any favorable returns. Panic selling when the stocks fall may make you lose a lot of money.

So the best tip if you want to invest in the equity market is to start an SIP in an appropriate equity mutual fund and remain invested for as long as you can.

Consult a financial advisor or mutual fund distributor to help you understand which equity mutua fund will suit your requirements.