Equity Mutual Funds

Source- This post on the Equity Mutual Funds has been created based on the article “Equity Mutual Funds” published in “Economic Times” on 11 July 2024.

About Equity Mutual Funds

1. About: Equity mutual funds are investment vehicles that collect money from multiple investors to buy a portfolio of stocks, also known as equity securities.

2. Purpose: They allow individuals to invest in a diversified collection of stocks managed by professionals.

3. Benefits of Equity Mutual Funds:

i) Professional Management: These funds are managed by experts who make investment decisions on behalf of the investors.

ii) Diversification: By holding stocks from various companies, equity funds reduce the risk associated with any single stock’s poor performance.

4. Types of Equity Funds:

i) Actively Managed Funds: These funds have portfolio managers who actively research, analyze, and select stocks with the goal of outperforming a benchmark index (e.g., the S&P 500). They charge higher fees due to their hands-on approach.

ii) Passively Managed Funds (Index Funds): These funds aim to replicate the performance of a specific market index (e.g., S&P 500) by holding the same stocks in the same proportions. They have lower fees and track the index closely without trying to outperform it. 

4. Risk and Returns:

i) Long-Term Growth: Equity funds can offer attractive long-term returns, making them a popular choice for investors with longer time horizons.

ii) Market Volatility: The value of equity funds can fluctuate due to stock market changes, posing a risk to investors.

iii) Suitability: Best suited for investors who can tolerate market ups and downs and are investing for the long term to maximize growth potential.

UPSC Syllabus: Indian Economy