Types of equity Mutual fund
In the increasing complex universe of types of equity funds, Investors are confused more often with their equity mutual fund portfolio.So before trying to device ones equity portfolio, lets analyse what are the most basic types of equity mutual fund available in the market.
1. Capital appreciation Funds
A mutual fund that attempts to increase asset value primarily through investments in growth stocks. The heavy investment in growth stocks increases the risk associated with these types of funds. This is sometimes called as "aggressive growth fund".In these funds manager have the leeway to buy any and all kind of stocks and are not forced to adhere any particular philosophy. The Fidelity Magellan Fund perhaps the world’s best known actively managed mutual fund is one in this kind.
2. Value funds
An equity mutual fund that primarily holds stocks that are considered to be undervalued Both with respect to their earnings and book value and that are likely to pay dividends. To know more about value funds please go through the article “what are value funds”
3. Quality Midcap and Large Cap Growth funds
A diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. Managers primarly invest in medium sized and large companies that are well established. They mainly consist of companies with above-average growth in earnings that reinvest their earnings into expansion, acquisitions, and research and development.
Investing in growth funds requires a tolerance for risk and a holding period with a time horizon of Eight to 10 years. Though this similar to Capital appreciation fund,the full control of the fund is not given to the manager. Manager just can’t suddenly hold 20% of the fund in a single company on which he bets as in the case of Capital appreciation fund.
4. Emerging leaders Growth fund
These are the funds which seek long term capital appreciation from investment in a portfolio of stocks across all market capitalization range. The portfolio may include those companies mostly small companies operating in emerging sectors of the economy or companies which exhibit potential to become leaders of tomorrow.
5. Special situation
These are the funds in which manager invest in stocks of companies that have nothing in particular in common except that something unique has occurred to change their prospects. An investment made due to a special situation is typically an attempt to profit from a change in valuation as a result of the special situation, and is generally not a long-term investment.
One of the condition in which of special situation that would prompt investors' attention would be a large public company spinning off one of its smaller business units into its own public company. If the market deems the soon-to-be-spun-off company to have a higher valuation in its present form than it will after the spinoff, an investor might buy shares in the larger company before the spinoff in an attempt to realize a quick price increase.
6. Broad Index based Fund
These are the funds which tracks some of the well known benchmarks.
Like S&P 500 , BSE 500, Wilshire 5000 Composite Index. We have already seen the details of investing in Broad Index based Fund here.