There are different types of equity mutual fund schemes and each offers a different type of
underlying portfolio that have different levels of market risk.
Large Cap Equity Funds is an open ended equity scheme which invests predominantly in
stocks of large cap companies where a minimum of 80% is invested in equity and equity related
instruments of large cap companies. This type of fund is known to offer stability and sustainable
returns, over a period of time.
Large Cap companies are generally very stable and dominate their industry. Large-cap stocks tend
to hold up better in recessions, but they also tend to underperform small-cap stocks when the
economy emerges from a recession. Large-cap tend to be less volatile than mid-cap and small-cap
stocks and are therefore considered less risky.
Mid-Cap Equity Funds invest in stocks of mid-size companies, which are still considered
developing companies. At least 65% investment is made in mid cap stocks. Mid-cap stocks tend to
be riskier than large-cap stocks but less risky than small-cap stocks. Mid-cap stocks, however,
tend to offer more growth potential than large-cap stocks.
Small Cap Funds invest in stocks of smaller-sized companies. At least 65% investment is made
in Small Cap stocks. Small cap is a term used to classify companies with a relatively small market
capitalization. Many small caps are young companies with significant growth potential. However,
the risk of failure is greater with small-cap stocks than with large-cap and mid-cap stocks. As a
result, small-cap stocks tend to be the more volatile (and therefore riskier) than large-cap and
mid-cap stocks. These type of funds are suitable for high risk appetite investors.
Multi Cap Equity Funds or Diversified Equity Funds invests in stocks of companies across
the stock market ie., large, mid or small regardless of size and sector. These funds provide the
benefit of diversification by investing in companies spread across sectors and market capitalization.
They are generally meant for investors who seek exposure across the market and do not want to be
restricted to any particular sector. They invest in companies across different market caps and
hence reduce the amount of risk in the fund. Diversification helps prevent events that could affect
a single sector for affecting the fund, and hence reduce risk.
Thematic Equity Funds: These funds invest in securities of specific sectors such as
Information Technology, Banking, Service and pharma sector etc., which is specified in their
scheme information documents. So, the performance of these schemes depends on the performance of
the respective sector. These funds may give higher returns, but they also come with increased risks.
EQUITY LINKED SAVINGS SCHEME (ELSS): Equity-Linked Savings Scheme (ELSS) is an equity mutual
fund investment that invests at least 80 per cent of its assets in equity and equity-related
instruments. ELSS can be open-ended or close ended. Investments in an ELSS qualify for tax
deductions under Section 80C of the Income Tax Act within the current overall limit of ₹1.5 lakh.
The amount you invest in ELSS is deducted from your taxable income, which helps you lower the amount
of income tax you are liable to pay. Investments in ELSS are subject to a mandatory three-year
lock-in period.
To know more about which fund suits your investment and risk profile the best contact your mutual
fund advisor.