10 Best Equity Mutual Funds In India: Features, Benefits And Taxation

Mutual funds

Equity funds mainly invest in stocks or shares of companies across various sectors. The main objective of equity mutual funds is to generate aggressive returns over a long period of time. In comparison to debt funds, these funds have an extended time frame, they offer more capital appreciation. If you want to invest in these funds, here’s a list of the 10 best equity mutual funds in India in 2022. Take a look!

10 Best Equity Mutual Funds in India

Note that this table is for illustrative purposes only.

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Disclaimer: Mutual Funds are subject to market risk, read all scheme related documents carefully.

How to Invest in Best Equity Mutual Funds Online and Offline?

Given below are the steps to invest in equity mutual funds online:

Step 1: Visit the official website of the Asset Management Company (AMC)

Step 2: Fill up the application form, upload PAN and Aadhar details and complete eKYC

Step 3: Invest in a mutual fund scheme with your online bank account

Given below are the steps to invest in equity mutual funds offline:

Step 1: Visit the nearest branch of the fund house

Step 2: Fill up the mutual fund application form with your name, bank details and mobile number

Step 3: Submit self-attested address/identity proof and passport size photographs and complete the KYC process

Step 4: Submit the cheque.

Step 5: Don’t forget to collect the PIN and folio number

Investors can also approach a mutual fund distributor for their investments. 

Benefits of Investing in Best Equity Mutual Funds

Given below are the benefits of investing in equity mutual funds:

• Diversification
  Equity mutual funds are diversified across stocks and sectors. It provides adequate protection against market shocks. 

• Risk mitigation
  In order to mitigate risk, fund managers adhere to rules defined by SEBI or the Asset Management Company (AMC).

• Convenience
  Investing in mutual funds is more convenient than buying various stocks. Furthermore, a Demat account or brokerage account is not a compulsory requirement, unlike stock investments.

• Regulation
  SEBI regulates and closely monitors every mutual fund. As a result, there is a level of transparency. As per SEBI’s mandate, AMCs need to upload their month-end portfolios, periodic expense ratios and NAVs on their website. 

Features of Equity Savings Fund

Given below are the features of equity savings funds:

• They invest in equity, debt and arbitrage

• Risk is lower than hybrid equity funds or arbitrage funds

• Low volatility and income are two of its important benefits

• They are suitable for investors with a low-risk appetite

How do Best Equity Mutual Funds Work?

Equity funds invest in equity shares of various companies. When someone invests in an equity fund, he/she becomes part-owner of the company. 

Given below are the important steps related to how equity mutual funds works:

• Equity fund investment depends greatly on the category of the fund. SEBI (Securities and Exchange Board of India) has formulated rules for each of the categories and equity funds need to strictly adhere to these rules.
• After the fund category, the investment universe is decided. Then, the portfolio manager decides on which stocks to pick from this pool of assets. This is where the expertise of the fund manager comes into play. He along with his team analyses the profitability of the company and how it can withstand challenging market situations. Based on this research, investment decisions are taken by the investor. 
• After the investor has purchased these stocks, it is the responsibility of the fund manager to track their performances. If a company does not perform as per initial expectations, they remove the stocks from its portfolio. If a company shows promise, the fund manager advises the investor to invest in them. 

Types of Equity Funds

Equity mutual funds are categorised on the basis of market capitalization, investment style and tax benefits:

Based on Market capitalization

• Large-cap equity mutual funds
  Offering more stability and sustainable returns, these mutual funds invest in companies that rank between 1 to 100 on the basis of market capitalization. 

• Mid-cap equity mutual fund
  These schemes invest in companies that rank between 101 to 250 in terms of market capitalization. These are riskier than large-cap but less risky than small-cap equity mutual funds. 

• Small-cap equity mutual fund
  These schemes invest in companies that lie above 250 in terms of market capitalization. They are the riskiest if compared with large-cap and mid-cap equity mutual funds. However, they can deliver the highest returns. 

• Large and mid-cap equity mutual fund
  When a mutual fund scheme equally divides asset allocation between large-cap and mid-cap equity mutual funds, it is known as large and mid-cap equity mutual funds. The asset allocation to both such market caps is fixed at 35% each of the total asset value. 

• Multi-cap equity mutual fund
  Through a multi-cap equity mutual fund scheme, one can invest in stocks of all market capitalization, i.e., small, mid-cap and large companies. The portfolio manager decides on the proportions of investments based on the latest market situation. 

Based on Investment Style

The classifications of equity mutual funds based on investment styles are as follows: 

• Index mutual funds
  When an equity mutual fund tracks a particular index, like Nifty 50 or Sensex, it is known as an index mutual fund. 

• Sectoral funds
  When one focuses their equity mutual fund investment on a particular sector, like pharma, technology or FMCG, it is known as sectoral funds. 

• Thematic funds
  When one focuses their investments on a particular theme, it is known as thematic funds. For example, investing only in international stocks or emerging eco-friendly companies. 

Based on Tax Benefits

Classification of equity mutual funds based on tax benefits is as follows: 

• Equity-linked savings scheme
  This is a tax saving mutual fund scheme which invests a minimum of 80% of its corpus in equity and equity-related securities. Section 80C of ITA allows tax deductions for investments up to Rs. 1.5 lakh in ELSS. 

How are Equity Mutual Funds Taxed?

When it comes to taxation, equity mutual funds have a dedicated tax structure: 

The capital gains earned on exit within 1 year are treated as Short Term Capital Gains (STCG) and are taxed at 15 per cent. 

If an investor holds investments for more than a year, the gains are classified as Long Term Capital Gains (LTCG) and are free if the profits fall under ₹ 1 Lakh, but taxed at 10 per cent if the gains exceed ₹ 1 Lakh. 

10 per cent TDS (Tax Deducted at Source) is deducted on dividends exceeding INR 5000 earned. 

Investments made in Equity-linked savings schemes are exempt from taxes up to INR 1.5 Lakhs on a lock-in period of 3 years.

Who Should Invest In Best Equity Mutual Funds?

Equity savings funds offer highly volatile returns when compared to other mutual fund investment options and are suitable to hold long term to escape market fluctuations. Investors who have a high-risk appetite and wish to generate wealth in the long haul can choose to invest in the best equity mutual funds. People having an investment horizon of 5 or more years and willing to invest in high-risk stocks can benefit from the best equity mutual funds. 

Also Read: What Are Gilt Mutual Funds? 

Risks Associated with Top Equity Mutual Funds

Given below are the risks associated with equity mutual funds:

• Liquidity risk
  Long term mutual funds come with rigid lock-in periods. As a result, there is liquidity risk. Often investors find it difficult to redeem their investments without a loss. Moreover, the absence of buyers makes it difficult for investors to liquefy their investments at their preferred time. 

• Volatility risk
  Generally, equity mutual funds invest in the shares of those companies that are listed on stock exchanges. The performances of these companies are dependent on microeconomic factors like an economic cycle, SEBI regulations, RBI guidelines and government directives. 

How to Choose the Right Equity Mutual Fund?

Given below are the crucial factors that an investor needs to look into while choosing equity mutual funds:

• Risk appetite
  Investors should base their decisions on the level of risk they are willing to take. The risk level of equity mutual funds varies. Mid-cap and small-cap mutual funds are very risky while aggressive hybrid mutual funds are not so. Large-cap funds provide moderate returns at low risk. If the investor wishes to take high risk, he/she should opt for mid-cap and small-cap mutual funds. 

• Investment horizon
  The choice of a mutual fund depends greatly on the investment horizon of an individual. Equity mutual funds are the best option for long-term goals. For short term goals, one can opt for a debt mutual fund.

• Expense ratio
  Investors need to choose an equity mutual fund with a low expense ratio. It is the fee that a fund house charges the investor for managing their fund. A fund with a low expense ratio ensures that the investor saves/invests more money.

• Fund performance
  Investors need to check the consistency in performance and fund managers’ expertise while choosing a mutual fund. 

Also Read: Equity Funds Vs Debt Funds: Differences & Things To Consider Before Making Investment Decisions

Final Word

Equity mutual funds are good investment options. You could choose one or more from this list of 10 best-performing equity mutual funds in India (2022) and start investing. It’s important to not give in to emotions when it comes to equity fund investing as it can be misleading. Bear in mind that mutual funds are subject to market risks and make sure to read all scheme related documents carefully. 

With Navi, investing becomes super easy and hassle-free. You can choose to invest in Navi Mutual Fund through platforms like Paytm Money, Zerodha, and Groww to name a few.  Download the Navi app today!

*Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 

FAQs on Best Equity Mutual Funds in India

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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.