Understanding Equity Mutual Fund Categories

Mutual Fund | June 03

All of us are interested to know which are the top performing Mutual Funds and which ones should you invest it. We are continuously approached for Mutual Fund advice where clients ask us which are good and optimum to invest given their risk profile. This includes Debt Mutual Funds as well as Equity Mutual Funds.

We have studied various types of equity funds & balanced funds also called Hybrid Equity fund as shown below -

All equity-

Table 1 shows the overall performance of equity mutual funds. The returns provided by equity mutual fund is higher compared to other investment avenues i.e. debt mutual funds, provident fund and so on. Hence investors looking for higher returns and ready to tolerate fluctuations can park their money in equity mutual funds.

Large cap funds-

The returns given by these funds are quite stable as they are less volatile to the changes in the market but are not high as compared to mid and small cap. This is beneficial for people who want exposure to the equity markets without taking high risks with their investment.

Mid and small cap-

The schemes have given an average return of 13% in one year, 15% in three years and 25% in five years. From the table it can be seen that people investing in mid and small cap should keep their fortunes invested for a longer period of time to get better returns. People willing to take more risk with their money can opt for this fund.

Equity oriented balanced fund-

This fund has 65% (or higher) of total sum invested in equity funds and remaining in other category funds (like debt mutual funds). Balanced equity funds are beneficial as they help to mitigate the risk of uncertainty and high losses. Hence the returns in various time periods show consistency compared to other schemes.

Equity funds technology-

Currently there are five schemes in this sector. The 1 year return generated from the schemes range from 30%-50%. However, none of the schemes have an AUM higher than 300 crore. Tata Digital India Fund-Regular Plan-Growth has generated 50.05% return in past one year. Though it may sound very tempting to invest but the scheme was launched at the end of 2015 and has not even completed 3 years. So, it is not suggested to rely on one or two years data. Previously the sector was not doing well for more than two years. However, recently it has picked up its pace. Better earnings of IT companies like Tata Consultancy Services have led to increase in returns. Also, IT is an export- based sector and has gained from recent depreciation in the domestic currency.

Pharma equity fund-

The pharma sector has not been performing well in the past few years and which is clearly evident in their returns. In last 3 years the returns have been -1.77%. The only scheme that has given positive returns in this sector is Reliance Pharma Fund-Growth Plan-Growth Option.

Infrastructure equity funds – 

This sector was not performing well nearly ten years ago but is now yielding a good return. In our view, given the push of the government on infrastructure funds, we believe it to be a good investment over a 3 year time frame. L&T Infrastructure Fund can be considered for investments.

Diversified equity funds -

As the name suggests diversified mutual funds invests in multiple stocks to reduce the risk of lower returns. This scheme has shown consistency in their performance and is recommended for investing.

Equity funds banking-

This sector fund was yielding higher returns till last one year. Past 1 year has been only 5.82% which is even lower than bank fixed deposit. The main reason for the poor performance is due to the Nirav Modi scam that hit PNB bank. Nationalized banks too have been suffering from the NPA problem for over 3 years that is causing the returns to look subdued. For investors looking to take exposure to the Banking sector, our recommendation would be to select one that invests only in private sector banks / NBFCs.

Equity fund FMCG-

The returns given by FMCG mutual funds has been quite good and consistent in the past few years. Top two schemes generating returns in this sector are SBI FMCG Fund - Regular – Growth and ICICI Prudential FMCG Fund – Growth.

We believe that, given the huge population, there is tremendous opportunity in this sector.

Thematic funds-

Thematic funds have given a good return in past few years. Companies like Tata, Aditya Birla Sun Life, Mirae Asset etc have their schemes under this fund.  However thematic funds are very risky and we do not recommend them because they invest across sectors that revolve around a common theme. If the theme selected by the investor falls it may even lead to negative returns.


ELSS is a tax saving mutual fund having 3 years lock in period under section 80 C. The one year returns given by ELSS is 12.57% which is much higher than other investment options. It is the best place to make investments under Section 80C as it not only provides income tax benefits but also better returns.

We hope the above article provides you with a good idea on the types of Equity Mutual Funds present in the market along with the Best Equity Mutual Funds in each of the categories.. Do let us know with your questions.

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Simran ShanwalAnalyst

I completed my graduation from St Francis College for Women, Hyderabad and pursuing MBA from Lal Bahadur Shastri Institute Of Management. I am also working for FinChikitsak as an Analyst and enhancing my understanding on Equity Markets, Mutual Funds ..

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