What are equity mutual funds

What are equity mutual funds?

An equity mutual fund (EMF) is a viable investment option for those seeking short-term or long-term gains. It is a way to diversify your investment portfolio. If you are new to the world of mutual funds and want to invest in EMF, it is vital to understand what equity mutual funds are, how they work, and their benefits. At the same time, you should be aware of their risks. Here is the answer to all this and much more you need to know.


There are plenty of investment options to help you secure your future. Of them all, equity mutual funds are some of the most rewarding choices. The purpose could be anything, from income to growth or a combination of both. They give investors endless money-making opportunities. They also involve the events of losses. EMFs may result in considerable returns. It, however, depends on the market trend and the time you buy and sell them.  

What are equity mutual funds?

Equity funds are mutual fund schemes that invest in stocks. In EMFs, you invest your money via SIP (systematic investment plans) or lump sum. Professional fund managers manage these funds. Irrespective of whether you choose SIP or lump sum, the fund manager invests your money in various equity stocks of different companies based on the objectives of the underlying scheme. EMFs allow investors to participate in the stock market even with low investment.

Equity mutual funds involve both: the rewards of capital appreciation and the risk of loss. The gains and losses obtained in the portfolio affect your fund’s Net Asset Value. If you invest in equity funds wisely, you can create long-term wealth. 

What are the benefits of equity mutual funds?

The benefits below make equity funds one of the feasible investment options to create long-term wealth. They are as follows:

Risk diversification

Equity mutual funds invest in a portfolio of stocks across various companies and industries, thereby providing risk diversification to the investor. This diversification across stocks and sectors minimizes the risk to a great extent.

Ideal for small investors

These funds work by pooling money from various investors, giving small investors an equal opportunity to gain capital appreciation. The minimum amount to invest in mutual funds is as low as Rs. 5000. If you are seeking long-term gains and want to invest via SIP, you can start with just Rs. 500.

Financial expertise is no barrier

Investors do not necessarily need to be financially literate to invest in mutual funds. Even individuals with no expertise in the stock market can make money from mutual funds, thanks to expert fund managers who manage mutual fund schemes. These professionals analyse the stock market and track investment opportunities to generate superior returns for investors.

High liquidity

Open-ended mutual fund schemes, except ELSS, offer high liquidity. They allow investors to redeem their units partially or fully at any time. You can sell your MF units by sending a redemption request to the Asset Management Company. It is worth noting that redemption in the exit load period might attract charges.

How to invest in equity mutual funds?

Equity funds are a popular way to invest in the stock market and gain returns over the long term. Here is how to invest in equity mutual funds:

  • Start by setting your investment goals. Determine whether you want to invest for long-term wealth creation, retirement, or other financial objectives. With clear goals, you can choose the right funds and make sure-fire investment strategies.
  • Understand mutual funds and how they work. Learn about their types (large-cap, mid-cap, small-cap, and sector-specific funds), benefits, and risks associated with equity funds.
  • The next step requires choosing a trusted fund house with a good track record of managing equity funds. Consider long-term performance, the fund manager’s expertise, and the reputation of the fund house in the industry.
  • Select the right funds that fit with your investment plans and risk capacity. Invest in funds across different market segments and asset classes to diversify your portfolio and reduce the risk prospects. 
  • Complete your KYC documents, such as proofs of identity, address proof, PAN, etc. Then open an investment account with a fund house or an MF distributor. You can do this via the fund house’s website or their app. Complete the registration by following the instructions and providing the necessary details, such as personal, banking, and financial.
  • Choose our investment mode by deciding whether you want to invest through a lump sum or SIP. The latter requires you to invest a fixed amount at a regular interval, i.e., monthly or quarterly.
  • Once your account is ready and KYC is verified, you can start making investments. Monitor and review the performance of your mutual funds and track how they align with your investment goals.

How to take a loan on mutual funds?

A loan against mutual funds is a secured loan where you pledge your MF units to get funds for your short-term financial needs. If you apply online, you can get a loan on mutual funds in a few simple steps. But you need to meet the eligibility criteria set by the lender. Just visit the lender’s website, fill out the application form by giving the necessary details, submit the required documents, and mark the lien. The application process may, however, vary from lender to lender. 

To conclude

Investing in equity funds requires understanding more than what equity mutual funds and their benefits are. Investors seeking investment in equity mutual funds should assess their investment goals and risk tolerance. It is crucial to read the fund’s prospectus before making any decision. Also, you may consult with a financial adviser to create a potentially better fund investment strategy.