The world of mutual funds is broadly classified into two major categories – equity-oriented and debt-oriented funds. According to data released by AMFI (Association of Mutual Funds in India), equity mutual funds have recorded a 3% rise in inflow in August compared to that in July, while that in debt funds have gone down by a whopping 62%.
That leads to the question, what are equity-oriented funds and debt-oriented mutual funds? The cut-off of 65% investments is extremely significant in mutual funds. Those mutual funds that invest at least 65% of their money into equity are known as equity mutual funds. According to recently released AMFI (Association of Mutual Funds in India) data, these funds have cumulatively attracted as much as Rs 38,239 crore in the month of August alone – or, more than Rs 1,233 crore a day on average. The comparable figure in July was Rs 37,113 crore.
Equity fund, types, investment
Equity funds come in an increasingly bewildering variety. The broad categories of funds under the umbrella of equity funds are large cap fund, mid cap fund, small cap fund, multi cap fund, large and mid cap fund, multi cap fund, flexi cap fund, value fund or contra fund, dividend yield fund, focussed fund, sectoral or theme fund and ELSS (equity linked saving scheme).
Some of these categories could be subdivided into smaller baskets. For example, there are numerous theme funds and the only constraint seems to be a lack of imagination. From energy opportunities to export-oriented fund, ESG (Environmental, Social, and Governance) to consumption opportunities, travel fund to PSU equity, pharma fund to defence sector – there are numerous types of funds in India and they are growing every month.
Where debt funds invest
On the other hand, debt funds invest in fixed-income debt securities. The primary target of these funds is capital preservation and regular income as opposed to growth of capital as in equity funds.
The instruments where debt funds typically invest include government and corporate bonds, T bills, (CP) commercial papers and money market instrument. Their returns can vary with fluctuations in interest rates in the country.
Significant differences
Equity funds are more risky than debt funds. Moreover, the returns on equity funds are usually higher than that offered by debt funds. Another significant difference between these two categories of funds lies in tax treatment the need for which arises when one redeems units and books profit. The cut-off and rules of short-term capital gains (STCG) and long-term capital gains (LTCG) differ between equity funds and debt funds.
Aided by the unprecedented bull run in the equity markets, a mutual fund craze is sweeping India. More and more people are investing in mutual funds to beat inflation. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
