All you need to know about different equity schemes in mutual funds

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Investing in equity schemes is a bit difficult task. As equity schemes provide a variety of schemes like sectoral, thematic, ELSS, etc. In a particular type of equity scheme, large-cap, medium-cap, and small-cap options are available.

Oftentimes, we wonder what is the difference between them? So, the following are the different equity schemes with their differences.

Sectoral:

Here, the fund manager pools the money and invests it in a particular sector. Banking, pharma, real estate, etc. are the type of sectors. This type of fund is considered to be risky. As the risk is high, chances of high returns are there.

Thematic:

Most people consider Sectoral and Thematic the same. But there is a difference between them. They are much more diversified than sectoral funds. So, they are less risky. They invest in stocks that are well-defined around a particular opportunity.

Contra funds:

Here, the amount is invested in stocks or sectors which are under-performing or performing not good at present but can grow in the future. These are the stocks that are not so favorite of investors. Stocks that are chosen here are from fundamentally strong companies. So, they can give handsome returns to the investors in the long run.

Value funds:

Oftentimes, investors perceive Contra funds and value funds the same. But there is a difference between them. Here, the money is invested in only under-performing stocks and not in sectors. Investors who want to invest for a long time can go for them.

ELSS:

It is an Equity Linked Savings Scheme. Generally, it has a lock-in period of 3 years. It provides tax benefits. In the case of SIP, an investor has to wait for 3 years after the last deduction to redeem all the amount. So, investors who can wait for sufficient time can go for it.

Apart from the above, based on market capitalization, equity schemes are divided into the following:

Large-cap:

SEBI has specified the definition of large-cap companies. Companies that are ranked from 1st to 100th in Indian stock exchanges based on market capitalization are included here. Investors who have less risk appetite and want to gain from long-term investments can choose this option.

Medium-cap:

According to SEBI, firms that are ranked between 101 and 250 as per market capitalization are included in medium-cap funds. They can offer higher growth compared to large-cap funds. They are considered to be less risky than small-cap funds.

Small-cap:

Companies that are ranked above 250 are included here as per SEBI. They are considered to be riskier. So, if you are going for it, make sure you do have other funds too in your portfolio.

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