How Rewarding are Equity Mutual Funds? Check it out Below
“Mutual Funds are subjected to market risks.” This sentence is not just a disclaimer given by all mutual fund houses but also a reality in its true sense. “No gain without pain” is a universal law which applies to everything including mutual fund investments. With a pinch of risks and dash of rewards, investment in the mutual fund becomes a perfect recipe to cook.
The mutual fund offers a variety of schemes, dealing with various investment objectives. The most promising of all the funds is the equity fund. Equity is the type of fund which holds a high end over returns. But at the same time, they are risky to handle. We have always been talking about the risks and rewards all the time but what exactly these words mean?
The risk involved in the money market is nothing but the fear of losing money. What gives rise to the risks in equity mutual fund is the unbeatable potential of fluctuations in the short term.
Now talking about the returns, equity is the most rewarding fund of all. When comparing with other asset classes, equity bears the sweet fruits for its enduring investors. Another reason which makes it lucrative is the presence of giant business houses. These large companies lighten the path for a prosperous economy, making equity as the hero in wealth creation.
Equity being the sky of wealth, has many glittering stars. Here is all you need to know about the risk and reward appetite of these bright stars or types of equity.
- Large-Cap Funds : Large cap funds as the name suggests invest the capital in the companies which have capitalisation amounting to Rs. 25,000 to Rs. 50,000 crores. As the colossal businesses are old players, they ensure trustworthiness and in a way, gives the investor a sense of security. The outstanding shares of these large-cap companies have gradually gained stability in their NAVs. The fear of default nullifies because of the gargantuan nature of these companies. Risk becomes reward when the intensity decreases. The large-cap funds, annul the risk making it more stable funds in terms of rewards.
- Small- & Mid-Cap Funds : Small- & mid-cap funds invest in the companies which have capitalisation less than Rs. 5000 crores and between Rs. 5000 to Rs. 10000 crores respectively. These are small and growing companies which do not have much deeper roots in the economy. The micro factors of the economy affect the small and mid-cap companies vigorously. Due to these factors investment becomes a bit risky. Investors are unable to hold trustworthiness on these nurturing saplings. As these funds do not promise a stable growth, perils are always in the forecast.
But as the new endeavors always welcome more hope, these funds always have a better scope of growth and returns. These funds pay off well if the companies show a rightward moving graph of growth. Returns on the small- and mid cap funds have higher growth prospects than any other fund. This type of fund is typically based on the market scenario. If the market is positive, returns will be positive, but if the market is negative returns also tend to be negative.
- Multi-Cap Funds :These funds invest in the mix of the large-, mid-, and small-cap companies stock. Thus, the risk of investments gets spread over the various stocks holding different potential. Due to the diversified approach of investing, the avidity of returns gets more stable in these funds as compared to the sector-oriented one. The best part of this category is that it provide multi-whether benefits to the investors. When the market is likely to give opportunities to the small and mid-cap companies, these funds reap the returns from the market. On the other hand, during the down pace of smaller industries, the large-cap stocks helps to fetch stabilise the returns.
- Sector Funds : Sector funds are the most volatile funds of all. Specific sectors such as banking, IT, Pharma biotechnology, utilities, precious metals are most attractive sector funds to invest in. The risk involved in this fund is high and impulsive in terms of returns. If a sector works positively then, returns can also be promising. What is to be considered in this type of fund is the right entry and right exit of investments. As it is a bit complicated to identify the correct time to invest in these funds, it is always advisable to consult an expert.
Nothing is free in this world; returns come only with risk. More the courage more the commendation. So, plan your investments wisely. Take help of experts and do justice with your hard-earned money.
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