Equity Mutual Funds – Are They For You?

Every investor at one point in time has wondered or looked up for what is Equity Mutual Fund meaning.

And it is definitely a good sign when someone wants to know equity mutual funds meaning.

After all, the number of investors in mutual funds have been growing since the last few years. So, it only makes sense to know more about equity mutual fund.

The mutual fund investment space is a vast one and it is very difficult sometimes to pick the right one for you.

Hence, it is very important that an investor knows about the different types of schemes available.

And in that list, the one that has the biggest chunk of the market under it, is Equity Mutual Funds.

What are Equity Mutual Funds?

As the name gives away, in the simplest form, equity mutual funds invest in shares of different companies.

The fund manager of equity mutual funds aims to get best possible returns by investing across companies from different verticals/sectors.

He/she also allocates investments based on market capitalizations.

Now, it must also be said that equity mutual funds are usually known to give long term risk adjusted returns.

However, one must not forget that the performance of equity mutual funds is dependent on market conditions. So, the risk associated is also high, like for any other investment in the stock market.

How do Equity Mutual Funds work?

To be classified as an “Equity Mutual Fund”, a fund’s asset allocation should have mandate to invest a minimum of 65% from its total assets to be invested in the equity or equity related instruments of different companies.

Then, based on the objective of the fund, the fund manager can invest the remaining funds into debt securities or other money market instruments. All aimed to get optimal returns for investors.

The fund manager has mandate to invest as per category of the scheme.

He/she can select companies accordingly, to achieve the scheme objective.

Equity mutual funds can be classified as Active or Passive.

Active Equity Mutual Fund: The fund manager studies the market to conduct extensive research on companies, examine their performance and then finally pick what he/she thinks are the best stocks to invest in.

Passive Equity Mutual Fund: The fund manager creates/builds a portfolio which replicates market index. Like Nifty50 or Sensex.

Equity Mutual Funds are also divided as per Market Capitalisation, i.e. Large Cap, Mid Cap, Small or Micro Cap Funds.

Now that we know more about Equity Mutual funds, there is something an investor must know before deciding to invest in them.

Equity Mutual Funds Taxation:

As you would know, any mutual fund gives returns to investors either as IDCW or as capital gains on redemption.

IDCW (Income Distribution cum capital withdrawal option): You have the option for Payout in the form of Daily or Monthly as selected out of distributable surplus available in the Daily or Monthly option and distributed as dividend to you from time to time after adjusting any statutory Levey as per income tax act.

Reinvestment of Income Distribution cum capital withdrawal option: In this option, the dividend distributed in daily option after adjusting any statutory Levey as per income tax act is reinvested back to the scheme which adds to the Units of the Investor.

A capital gain is the profit realised by investors due to the appreciation in the price of the mutual fund units.

IDCW and capital gains, are both taxable in the hands of the investors.

Equity Mutual Fund Taxation - On IDCW

According to the amendments made in the Union Budget 2020, IDCW that investors get from any mutual fund scheme will be taxed in what is called the “classical manner”.

Which simply means, all IDCW that an investor receives are added to his/her taxable income, which is then taxed according to the income tax slab rate the investor falls under.

Equity Mutual Fund Taxation - On Capital Gains

The taxation on capital gains from any mutual fund depends on two factors - the holding period & type of mutual fund.

In simple terms, holding period is the time for which the investor holds the investment in their portfolio. Or the time between the purchase and sale of the units.

In case of Equity Mutual Funds, the capital gains are classified as either short term capital gain (Holding period of less than 12 months) or long term capital gains (Holding period more than 12 months).

Short term capital gains are taxed at 15% plus the applicable cess & surcharge.

Long term capital gains upto Rs 1 lakh a year are completely tax free. All gains above Rs 1 Lakh are taxed at 10% plus the applicable cess & surcharge.

That was about Equity Mutual Fund Taxation.

Now let’s talk about Equity Mutual Fund Returns.

You see, the core objective of investing in Equity Mutual Funds is for long term wealth creation with potential to beat the inflation.

since Equity Mutual Fund returns are affected by market fluctuations and over all economic conditions, the returns fluctuate as well.

Hence, if you want the equity mutual fund returns to match your investment objectives , you have to pick the funds you invest in with utmost care.

Quantum Mutual Fund has been managing the investors money since 2006.

Now coming to an aspect of mutual fund investments that is a must know for any investor.

Equity Mutual Fund Cut Off Time:

In the old days, if an investor wanted to take advantage of the NAV, like redeeming at a high NAV or buying at a lower one based on that market day NAV , he/she would have to rush to their AMC’s or Register and Transfer Agents (RTA’s) and submit applications, before the Cut Off Time.

However, From February 2021, Mutual Fund houses can allot units only after realization of funds from the investor. So, even if you submit your purchase application before the cut off time, the allotment of units will only happen when the funds are realized at the fund house’s end.

In simple words, what NAV will apply to your investment depends upon when the fund house receives your money.

We assume you now have enough knowledge about Equity Mutual Funds as we spoke about equity mutual funds meaning, equity mutual funds taxation, equity mutual funds returns & the effect of equity mutual fund cut off time on NAV applicability.

So, if you want to start investing in an Equity Mutual Fund, you can start with us right here.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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