What is Equity Fund?

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An Equity Fund is a type of mutual fund or exchange-traded fund (ETF) that primarily invests in stocks as know as equities. These funds aim to provide capital appreciation over the long term by benefiting from stock market growth. The main goal of an equity fund is to achieve capital growth by investing in a diversified portfolio of shares from different companies.

what is equity fund

Types of Equity Funds

Equity funds can be categorized based on different factors:

  1. Large-Cap Funds: Invest in well-established, stable companies with high market capitalization.
  2. Mid-Cap Funds: Focus on mid-sized companies that have growth potential but are riskier than large-cap stocks.
  3. Small-Cap Funds – Invest in smaller, emerging companies with high growth potential but higher risk.
  4. Sectoral/Thematic Funds – Invest in specific industries like technology, healthcare, or energy.
  5. Index Funds – Passively track a stock market index (e.g., S&P 500, Nifty 50).
  6. Growth Funds – Focus on stocks with high potential for capital appreciation.
  7. Value Funds – Invest in undervalued stocks that have potential for price recovery.
  8. Dividend Yield Funds – Target companies that offer high and consistent dividend payouts.

Advantages of Equity Funds:

  • Diversification – Reduces risk by spreading investments across various stocks.
  • Professional Management – Managed by Fund Managers who are experts in analyzing and making smart investment decisions.
  • Liquidity – Can be bought and sold easily compared to direct stock investments.
  • Potential for High Returns – Historically, equities have outperformed other asset classes over the long term.

Risks of Equity Funds:

  • Market Risk – Volatile market situations impact stock prices fluctuations and impacts fund value.
  • Sector Risk – Concentrated funds may suffer if a specific sector underperforms and industries may perform poorly in that uncertain economic conditions.
  • Management Risk – The performance depends on the expertise of the fund manager

Best performing Equity Fund in India

As per Reference from Economics Times Sources, The top performing equity mutual funds in India till December 31, 2024, were:

  • Motilal Oswal Midcap Fund: Delivered a remarkable return of 57.47% in 2024. Over the past three years, it consistently provided positive returns: 55.83% in 2021, 10.71% in 2022, and 41.68% in 2023.
  • Motilal Oswal ELSS Tax Saver Fund: Achieved a 46.55% return in 2024, maintaining positive performance over the previous three years.
  • Motilal Oswal Flexi Cap Fund: Recorded a 46.23% return in 2024. It posted positive returns in 2021 and 2023 but experienced a slight decline of 3% in 2022.
  • Motilal Oswal Large & Midcap Fund: Provided a 45.18% return in 2024, with returns of 40.82% in 2021, 1.66% in 2022, and 38.05% in 2023.
  • Invesco India Midcap Fund: Delivered a 43.22% return in 2024, consistently offering positive returns over the last three years.
  • Invesco India Focused Fund: Achieved a 43.21% return in 2024, with positive returns in 2021 and 2023, but faced a decline of 8.61% in 2022.
  • Bandhan Small Cap Fund: Returned 42.31% in 2024, with exceptional performances in 2021 and 2023 (over 50%) but a 6.13% loss in 2022.
  • HSBC Midcap Fund: Offered a 39.33% return in 2024, maintaining a positive performance streak for the last three years.
  • Edelweiss Mid Cap Fund: Recorded a 38.78% return in 2024 with consistent positive returns over the past three years.
  • LIC MF Small Cap Fund: Delivered a 38.59% return in 2024, also achieving positive results for the past three years.

These funds have demonstrated strong performance in 2024, with several maintaining consistent returns over the past few years. However, past performance does not guarantee future results. It’s essential to consider your investment objectives, risk tolerance, and consult with a financial advisor before making investment decisions.

Top 10 Equity Mutual Funds to invest in 2025

As per sources from scripbox. The top performing equity mutual funds to invest in 2025, are:

  1. SBI Long Term Equity Fund Direct (G): This fund has delivered a 1-year return of 22.1%, a 3-year return of 22.0%, and a 5-year return of 23.8%. It has an expense ratio of 0.9% and assets under management (AUM) of ₹27,791 crores.
  2. HDFC Large and Mid Cap Fund Direct (G): This Equity fund has delivered a 1 Year return of 11.3%, a 3 Years return of 19.9% and a 5 Years return of 22.4%. The fund has an expense ratio of 0.8% and an AUM of ₹23899 crores as of 2025-01-31. It was Launched on 2013-01-01. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 97.42% to equities and 2.21% to other assets.
  3. ICICI Prudential Bluechip Fund Direct (G): This Equity fund has delivered a 1 Year return of 12.3%, a 3 Years return of 16.6% and a 5 Years return of 18.7%. The fund has an expense ratio of 0.9% and an AUM of ₹63264 crores as of 2025-01-31.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 90.00% to equities, 0.49% to debt and 9.51% to other assets.
  4. ICICI Prudential Value Discovery Fund Direct (G): This Equity fund has delivered a 1 Year return of 14.0%, a 3 Years return of 20.4% and a 5 Years return of 24.8%. The fund has an expense ratio of 1.0% and an AUM of ₹48308 crores as of 2025-01-31.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 85.74% to equities, 1.02% to debt and 13.24% to other assets.
  5. DSP ELSS Tax Saver Fund Direct (G): This Equity fund has delivered a 1 Year return of 18.2%, a 3 Years return of 17.9% and a 5 Years return of 20.8%. The fund has an expense ratio of 0.7% and an AUM of ₹16610 crores as of 2025-01-31. It was Launched on 2013-01-01. The minimum SIP investment is ₹500 and the minimum lump sum investment is ₹500. The fund allocates 96.72% to equities and 3.28% to other assets.
  6. Parag Parikh Flexi Cap Fund Direct (G): This Equity fund has delivered a 1 Year return of 19.6%, a 3 Years return of 18.6% and a 5 Years return of 24.8%. The fund has an expense ratio of 0.6% and an AUM of ₹87539 crores as of 2025-01-31. It was Launched on 2013-05-24. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 79.51% to equities, 19.88% to debt and 0.61% to other assets.
  7. Nippon India Small Cap Fund Direct (G): This Equity fund has delivered a 1 Year return of 11.0%, a 3 Years return of 23.3% and a 5 Years return of 31.5%. The fund has an expense ratio of 0.7% and an AUM of ₹61974 crores as of 2025-01-31.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 95.94% to equities, 0.02% to debt and 4.04% to other assets.
  8. JM Value Fund Direct (G): This Equity fund has delivered a 1 Year return of 9.0%, a 3 Years return of 23.2% and a 5 Years return of 22.9%. The fund has an expense ratio of 0.8% and an AUM of ₹1085 crores as of 2025-01-31.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 99.86% to equities and 0.14% to other assets.
  9. Nippon India Large Cap Fund Direct (G): This Equity fund has delivered a 1 Year return of 13.6%, a 3 Years return of 19.4% and a 5 Years return of 19.3%. The fund has an expense ratio of 0.7% and an AUM of ₹35700 crores as of 2025-01-31.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 98.27% to equities, 0.01% to debt and 1.72% to other assets.
  10. ICICI Prudential Dividend Yield Equity Fund Direct (G): This Equity fund has delivered a 1 Year return of 16.6%, a 3 Years return of 23.1% and a 5 Years return of 26.1%. The fund has an expense ratio of 0.5% and an AUM of ₹4766 crores as of 2025-01-31. It was Launched on 2014-05-16. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 94.70% to equities, 1.17% to debt and 2.90% to other assets.

Please note that past performance is not indicative of future results. It’s essential to assess your investment objectives, risk tolerance, and investment horizon before making decisions. Consulting with a financial advisor can provide personalized guidance tailored to your financial goals.

Things to know Before Investing in Equity Funds

Investing in equity funds can be a great way to grow wealth, but it also comes with risks. Here are some key factors to consider before investing:

1. Investment Goals & Time Horizon

  • Are you investing for long-term wealth creation, retirement, or short-term gains?
  • Equity funds perform best over 5+ years; short-term investors should reconsider.

2. Risk Tolerance

  • Equity funds can be volatile; market fluctuations are common.
  • Large-cap funds are relatively stable, while mid-cap & small-cap funds are riskier but offer higher growth potential.
  • Assess your ability to handle market downturns before investing.

3. Fund Type & Investment Strategy

  • Choose between large-cap, mid-cap, small-cap, sectoral, or thematic funds based on your risk appetite.
  • Growth funds aim for high returns, while value funds focus on undervalued stocks.

4. Expense Ratio & Fees

  • Expense ratio is the annual fee charged by the fund for management; lower is better.
  • Exit load is a penalty if you redeem units before a certain period.

5. Past Performance & Fund Manager Expertise

  • Past returns do not guarantee future success, but they indicate how well the fund performs in different market conditions.
  • A strong fund manager with a good track record can make a significant difference.

6. Diversification & Asset Allocation

  • A well-diversified portfolio (across different sectors & market caps) reduces risk.
  • Avoid putting all money into a single fund or sector.

7. Tax Implications

  • Short-term capital gains (STCG): 15% tax if sold within one year.
  • Long-term capital gains (LTCG): 10% tax if gains exceed ₹1 lakh in a financial year.

8. SIP vs. Lump Sum Investment

  • Systematic Investment Plan (SIP): Invests small amounts regularly, reducing market timing risks.
  • Lump Sum Investment: Suitable if markets are undervalued or for long-term holding.

9. Market Conditions & Economic Factors

  • Keep an eye on interest rates, inflation, and global market trends.
  • Investing during market downturns may provide better entry points.

10. Exit Strategy & Liquidity

  • Have a clear exit strategy; equity funds are liquid but may incur exit loads if redeemed early.
  • Ensure your investment aligns with financial goals to avoid panic selling.

According to SEBI, funds which invest minimum 60% of its total assets in equity & equity related instruments are referred as equity mutual funds. Best equity funds which are the top rated equity funds giving better returns as compared to the other funds in the same category within a defined time period.

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