You must be wondering about diversified equity funds and what they actually equate to. To put it simply, these are diversified funds or funds that make investments in companies across various business sectors and organizational sizes. Investments are diversified throughout the market in order to enhance overall returns and gains for the investors. These plans are mostly offered through structures like mutual funds, ULIPs (unit linked insurance plans) and the like.
Diversified mutual funds make investments in large caps or larger organizations that have bigger market capitalization and small caps which have smaller capitalization in the market. Mid caps or midsized organizations are also present in the market.
Functioning of diversified equity funds
When it comes to the operational aspects of diversified equity funds, they may invest in organizations throughout several business sectors. These funds are mostly launched for providing scope to investors to profit from the financial progress and growth of organizations across multiple sizes and throughout various sectors.
These are deemed suitable for those investors who wish to achieve goals for the long haul such as planning for retirement, saving up for the education of their children or their children’s weddings and so on. Diversified mutual funds can be used solely by themselves or as part of a larger portfolio.
Key advantages of diversified equity funds
Diversified equity funds come with several benefits for investors. These include the following:
- Spreading of Risks- Risks are seamlessly spread out over multiple companies, sizes and business sectors via diversification as the core approach. Naturally, investing in diversified portfolios of companies spreads out the overall risks for investors and enhances possibilities of gains.
- Management- These funds are managed professionally, which is another major plus point for investors. Most managers come with abundant experience in the financial market and investing. They are supported by adequate research and analysis which guide their investment decisions.
- Entry Threshold- The entry level or threshold for these funds is on the lower side, making it more accessible to a wider investor base. Investments can be done for as little as Rs. 500 every month and this will be spread out across multiple stocks likewise.
- Scaling Up- Through these investments, you can save on hefty costs of transactions in the long haul. Suppose you invest yourself and actively manage your own stock portfolio. You will have to incur recurring and sizable costs of transactions while selling stocks prior to a year will lead to STCG (short term capital gains) taxes of 15%. Investing in these funds saves you from all these costs of transactions and with smaller investment amounts overall, it becomes easier to hold onto stocks for a longer period of time as well.
As can be seen above, diversified equity mutual fund investments come with a plethora of key advantages for investors. You should do your homework carefully before signing on the dotted line. Make sure that you opt for a reputed fund house and experienced fund manager.