Equity Funds, also known as growth funds, primarily invest at least 65% of the scheme's assets in stocks of companies. The companies may belong to different segments of the economy like banking, FMCG, energy, infrastructure and the likes. These funds deliver relatively higher returns to grow wealth over the long run. The scheme is managed by a fund manager who picks those stocks which will help in achieving the fund’s investment objective. Equity funds can be actively managed or passively managed. In the case of actively managed funds, the fund manager is supported by a team of analysts who conduct equity research to pick the best stocks. On the contrary, in the case of passively managed funds like index funds, the fund manager imitates the portfolio of the underlying benchmark

Being market-linked products, there is some sort of market risk involved in equity funds. It may cause the NAV of fund to fluctuate as per the ups/downs of the stock price movements. However, equity funds have a reputation of generating higher risk-adjusted returns as compared to other mutual funds. Within these, funds like small cap funds and mid cap funds which invest in less-established firms are high risk-high return investments. Similarly, focussed funds which hold a concentrated portfolio of highly promising stocks aim to deliver outstanding returns. Conversely, large cap funds are known to provide relatively stable returns over the long run. In order to manage risks, you may invest via the SIP route in well-diversified funds for a period of at least 5 years and more.

Whether a beginner or a seasoned investor, any body can invest in equity funds to enjoy various benefits. Equity funds are suitable for long term investors who have a relatively higher risk appetite. These investors mostly look for capital appreciation to fulfill their long term goals like retirement planning, children’s education and the likes. As these funds are managed by experienced fund managers, you can avoid the inconvenience of tracking the market. Also, you can take broader exposure to equities with a small investment amount of as low as Rs 100.

Every investor has a unique set of financial requirements. At the same time, you can follow a few thumb rules to pick the right equity fund. Look for a fund whose investment objective and risk profile is in line with your financial goals and risk appetite. Be prepared to stay invested for a long term to receive the full potential of your fund. Compare the risk-adjusted returns of competitive equity funds. Choose the one which has given higher returns consistently. As expense ratio also affects fund returns, you may invest in direct plans of equity funds. These have a lower expense ratio which means that you receive higher returns on investment. If choosing the right fund seems tricky, then you can also explore our investment packs on Paytm Money app.