Definition: The Equity Diversified Funds are the investment funds that contains the different types of stocks that offer the growth opportunity to the investors and at the same time reduces the risk.
The equity diversified funds are of following types:
- MultiCap Fund: The multi cap funds are the equity diversified funds that can invest in companies across market capitalization. This means these funds can take advantage of investments across the market cap. These funds are flexible and unlike other category funds Viz largecap, midcap, smallcap, and sector fund segment (which have restricted mandate and strictly stick to those companies that are defined by their respective market capitalization) can realign the market cap allocations as per the market situations.
For example, the largecap fund cannot invest in the midcap or smallcap stocks and similarly the small or mediumcap funds cannot invest in the largecap stock. Thus, such flexibility is offered in the case of the multicap funds. These can be invested in any stock depending on the market situations.
- Contra Fund: The contra funds are those funds which take a contrarian view on the equities. Here the stocks of those companies are selected which have unrecognized value. This means the fund manager picks those underperforming stocks that are likely to perform or yield more in the long run, at cheap valuations. Since the performance of stocks is better in future, these kinds of funds are selected by those investors who have an aggressive risk appetite.
- Index Fund: The index funds are those equity diversified funds that replicate the movement of popular stock market indices such as S&P, BSE, NIFTY, etc. This means the index fund invests in the same pattern as like the benchmark indices. The value of the mutual fund goes up and down as the value of the index goes up or down. These are relatively lower cost funds, as the fund manager is not required to make as many investment decisions or do as much research as required in other kinds of portfolios.
- Dividend Yield Fund: These funds invest in the share or stocks of those companies that have high dividend yields. What is Dividend Yield? The dividend yield is measured by dividing the dividend per share by the market price of the share. Often, those companies are selected whose dividend yield is higher than the dividend yield of a particular index, such as BSE, Nifty, etc. The price of dividend yielding stock is less volatile as compared to the growth stocks and also offers the opportunity for growth.
Thus, the investor can invest in either of the equity funds depending on the purpose for which these are bought.