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What Is An Equity Investment? 5 Types Of Equity Investment Explained!
The objective of investing in mutual funds is to earn profits and accumulate wealth over a long period. The investment could either be fixed or market linked. Today, there are an array of investment products available in the market. Market-linked investments include mutual funds, stocks, etc. Meanwhile, fixed investments are Fixed Deposits, Recurring Deposits, Post Office Deposit, etc. One of the most common and popular investment areas is the equity market.
What is the equity market?
As we have mentioned before, the investment market is divided into fixed and market linked investment. Fixed instruments provide investors with predetermined returns during the investment tenure. Such investments carry low risk and are considered safe as well as secure for risk-averse individuals.
On the other hand, market-linked instruments such as the equity market in India, offer high returns in short tenure. However, they carry high risk and entirely dependent on the performance of the fund. Market-linked investments are further classified as equity and non-equity investments. In the equity market, investors majorly invest in equity derivatives of different companies. Non-equity investments are primarily bonds such as corporate or Government. The other non-equity investments are a certificate of deposits, treasury bills, repurchase agreements, commercial papers, etc.
What are the types of equity investment?
There are 5 types of equity market:
1) Equity Linked Savings Scheme (ELSS): It is also known as the tax saving scheme. It provides the dual benefit of tax exemption and equity investment. They hold a diverse portfolio, where the investor can invest in small-cap, mid-cap, and large-cap companies as per their convenience. The return on investment is eligible for tax deductions under Section 80C of Income Tax Act, 1961. It is ideal for investors who want high returns for a longer period along with tax saving benefit.
2) Sector equity fund: Such investments focus on shares of companies operating in a single sector such as financial services, healthcare, or technology. Since the stakes are done in the fixed industry, the return on investments is not very high in comparison to risk levels. They are suitable for high-risk appetite individuals and wishes to invest in a single sector.
3) Equity diversified fund: The investments are made in a diverse portfolio of small-cap, mid-cap, and large-cap companies. Equity diversified focuses on investing in the stock market. This is essential to gain maximum profit and returns on investment. An investor can invest in different sector and industries as per their convenience.
4) Global fund: They are an incredibly diverse category of funds. You invest here in companies located globally, including the investor’s own country. Global funds offer lucrative returns on investment as global fund finds the best investment from the global market of equity securities. Since investors invest in a diverse portfolio, the potential return on investment is high, and so is the market risk. Global funds focus on a single asset class or multiple assets.
5) Hybrid funds: The last kind of equity market in India is hybrid or balanced funds. They invest their amount in debts and equities. Almost 65 per cent of the amount gets invested in equity and equity-related securities, while the remaining 35 per cent is invested in debt funds. Hybrid funds are less volatile and offer stability in case of fluctuations. This fund is great for first-time investors and risk-averse individuals. The returns are steady as well.
About the author:
Nirav Desai is a financial advisor and has a 10-year plus experience of working in a reputed mutual fund company. In this article, he has researched on equity market and explained its types
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