A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What are equity funds?
An equity fund is a mutual fund scheme that invests predominantly in shares/shares of companies. They are also known as Growth Funds.
Equity funds are active or passive. In an active fund, a fund manager analyzes the market, conducts research on companies, examines performance, and looks for the best stocks to invest. In a passive fund, the fund manager builds a portfolio that mirrors a popular market index, such as Sensex or Nifty Fifty.
In addition, equity funds can also be divided so by Market capitalization, i.e. how much the capital market value is the net worth of an entire company. There can be Large Cap, Mid Cap, Small or Micro Cap funds.
Also there may be a further classification as diversified or sectoral/thematic. In the former, the scheme invests in stocks from the entire spectrum of the market, while in the latter it is limited only to a particular sector or theme, such as Infotech or Infrastructure.
Therefore, an equity fund essentially invests in shares of the company and aims to provide the benefit of professional management and diversification to ordinary investors.