Navigating Equity Market: A Beginner’s Guide to Mutual Funds

Mutual Funds for Beginners
Photo Credit: Smallcase

Ever since its beginning, mutual fund investment has been one of the most preferred options for investors. As there are so many options out there, choosing the right tool becomes a difficult task. Here, we will learn about equity mutual funds in India along with their types and benefits.

What are Equity Mutual Funds?

As you can tell by the name, equity mutual funds invest in various companies’ shares. These funds offer high returns as they focus on equities, along with tax benefits in the case of ELSS Funds. However, the risk associated with equity funds is high due to its relation with the equity market.

Equity funds can be either actively or passively managed. In both cases, experienced fund managers invest money and track the overall fund performance.

In active funds, the fund manager performs a market scan, researches different companies, and analyzes recent performance to search for the best companies to invest in. On the other hand, in passive funds, fund managers construct a portfolio that is exactly similar to Nifty Fifty, Sensex, or other popular market indexes. As a result, passive funds are less expensive than active funds.

Types of Equity Mutual Funds

Planning to invest-in Mutual Funds
Photo Credit: Moneycontrol

There are many different ways in which you can categorize equity mutual funds. Let’s know about the most popular ones.

Based on Investment Strategy

  • Sectoral or Thematic Funds
  • Focused Equity Funds
  • Contra Equity Funds

Based on Market Capitalization

  • Large Cap Funds
  • Mid Cap Funds
  • Small Cap Funds
  • Multi Cap Funds
  • Large & Mid Cap Funds

Based on Tax Treatment

  • Equity Linked Savings Scheme or ELSS
  • Non-Tax Saving Equity Funds

Depending on your goals and risk appetite, you can invest in equity funds.

Benefits of Equity Mutual Funds

You get the following benefits when you invest in equity mutual funds –

  • High Return Rates: In the long term, equity mutual funds can outperform inflation as they offer higher return rates. They benefit from compounding and boost your returns significantly over longer tenures.
  • Professional Fund Management: Fund managers who manage equity funds for investors have market expertise and knowledge. They analyze different companies and the recent performance of stocks to invest funds in the best possible options for profits.
  • Liquidity: You can easily redeem your equity fund units any day at any time you want. There is no need to wait for market hours and this liquidity is a great advantage for traders. However, ELSS funds have a lock-in period of 3 years.
  • Portfolio Diversification: Equity funds expose investors to a variety of different stocks and expand their portfolios. Even if certain stocks don’t perform, others may and you get benefits.
  • Affordable: You can make weekly, monthly, or quarterly payments with a Systematic Investment Plan. Also, you can start from as low as Rs. 500.
  • Tax Benefits: Investors can also get various tax benefits by investing in funds like ELSS and Non-Tax Saving equity funds.


Mutual fund investment has been a popular choice for investors across India. They offer diversification and expertise of fund managers who manage these funds. If you want to begin investing in equity funds, you can download the Dhan app for a lightning-fast and reliable experience.