Equity Opportunities Fund
By: Abhilash Khalkar
Tags: Equity, Stock Market, Mutual Funds, Growth, Investing

Image Source: Money Under 30

Everyone aims to build wealth and grow his or her money over a certain period. There are an array of financial vehicles available today, which have potential growth and rate of return associated with them. Not investing in growth instruments causes you to miss out on financial growth.

Equity opportunities fund is one such type of financial vehicle which assists you to achieve your financial goals. However, since there are different types of mutual funds in India, one might get confused regarding the mutual fund categories. This article will help you understand equity opportunities funds in India, how to align your financial goals with these funds, and their effect on your investment.

What is an Equity Opportunities Fund?

An equity opportunities fund is a financial instrument, which is made up of capital collected from a pool of investors. This capital is then utilized to invest in securities such as money markets, bonds, stocks, and other assets. Equity opportunities funds are usually operated by experts and professionals, who invest the fund’s assets and attempt to generate gains on the capital for the investors. These experts and professionals structure and maintain a mutual fund’s portfolio to match up with the investment goals in the fund’s prospectus.

Using equity opportunities funds small and individual investors are given access to portfolios managed by experts and professionals. These portfolios may consist of equities, securities, and bonds. Shareholders or investors in the mutual funds, thus share the losses and gains. The performance of an equity opportunities fund is derived by the average performance of underlying investments and calculated as the difference in the overall market capitalization of the fund.

How does an Equity Opportunities Fund work?

Image Source: Paintball Minnesota

Equity opportunities fund is managed by experts and professionals who look across sectors for best-performing stocks and pick a mixture of stocks of publicly traded companies. The fund manager in an equity opportunities fund has full control of the investment decisions and may select from a pool of mid-cap or large-cap stocks, from amongst various sectors. The weightage gives to small-cap, mid-cap, or large-cap stocks in the equity opportunities fund depends on the financial goal of the fund.

The size of a publicly-traded company is categorized based on its value or its market capitalization. These categories are as follows:

i. Large-cap: Companies with a market capitalization of more than INR 20,000 crores

ii. Mid-cap: Companies with a market capitalization of less than INR 20,000 crores but more than INR 5,000 crores

iii. Small-cap: Companies with less than INR 5,000 crores of market capitalization

An equity opportunities fund may exclusively invest in one of these categories or in a combination to suit the goals of the fund.

Who should invest in the Equity Opportunities Fund?

The most important characteristic to invest in an equity opportunities fund is the willingness and ability to take the risk. Most of the equity opportunities funds available in the market are in some way or other associated with equities. This is on account of the high risk and high reward nature of the equity mutual funds. Financial planners often advise that the younger you are, the more should you invest in equity funds, since you have ample time on your side to even out the ups and downs of the market. There different equity mutual fund categories available to suit the goals of investors.

Another important characteristic required in an individual to be able to invest in the equity opportunities fund is the ability to stay invested in a certain fund for a long duration. Investors should understand that volatility is an inherent characteristic of an equity-based fund, which can cause erratic swings in valuation over the short term. Historically, the direction of the stock market has been upwards. Investors need to understand this factor, and stay invested in the fund even in tough times, as the potential reward is surely going to be high. Professionals have advised investors, to stay invested in equity opportunities funds for longer durations, to maximize returns and minimize risks.

Equity opportunities fund is ideal for investors who wish to achieve moderate to high returns in equity-related instruments, and are willing to consider the associated risk. Not all of us have the expertise and time to invest in the stock market, to study all companies. In such a scenario, an equity opportunities fund is one of the best choices to achieve capital gains without the hassle to study the stock market.

Things investors should consider before investing in Equity Opportunities Fund

Image Source: Berley Chartered Accountants

The first step you need to take to choose the best equity opportunities fund for yourself is to assess your own needs. The next step in this process is to determine your financial goal. Do you want to build your wealth quickly, at a moderate pace or low pace? Once you have figured this out, the final thing to consider is your risk appetite. High return generating mutual funds often have a high risk associated with them. These funds are suitable for investors who want to generate quick returns and have a high-risk appetite. If your aim to generate wealth gradually over time, then moderate or low-risk equity opportunities funds will be best suited for you.

Top 5 performing equity funds in India

Image Source: Jeferson Costa

There are different equity opportunities funds available in India, and choosing one, which suits your financial goals, can be a tedious task. The list of equity opportunities funds in India is extensive, and the different kinds of mutual funds available in the market offer diverse options to match up with the risk appetite of investors. Understanding different types of equity opportunities funds in India is easy and learning about them, allows you to make informed decisions. Here is a list of top 5 performing equity funds in India, for your perusal:

Kotak Standard Multicap Fund

Motilal Oswal Multicap 35 Fund

ICICI Prudential Bluechip Fund

Axis Bluechip Fund

Mirae Asset Hybrid Equity Fund

Advantages of Equity Opportunities Fund

Equity opportunities funds are known to offer compelling ways, which are both flexible and easy to create diversified investments and generate a new stream of revenue. Equity opportunities funds have investments in various securities, which gives the shareholders access to a diversified portfolio at a low price.

For instance, imagine an investor who invests in only one stock of Hindustan Unilever Limited before the company suffers a rough quarter. The investor in this case is liable to lose all his or her money since it is all tied up to just one company. Whereas, consider an investor who invests in an equity opportunities fund which has some holdings in Hindustan Unilever Limited. The investor in this case loses only a small portion of their capital when Hindustan Unilever Limited suffers a bad quarter. This is because, it is just a small portion of the portfolio, and the loss incurred here is mitigated by the gains from other companies.

Some of the other advantages offered by equity opportunities fund include:

Well regulated

Tax-efficient

Convenient

Diversification

Risk mitigation

Professional fund management

Tax implications of equity opportunities funds

Image Source: HDFC Life

In the case of an investor purchasing and selling stocks in his portfolio, according to current tax laws, he or she will be entitled to short-term or long-term capital gains tax on each stock he or she buys or sells depending on the holding period (greater or lesser than a year). So if an investor holds one stock for 18 months and another stock for 6 months, he would be taxed for the first stock’s long-term capital gains tax and the second stock’s short-term capital gains tax.

Capital gains tax in India:

Short-term capital gains tax: Less than a year or 12 months — 15%

Less than a year or 12 months — 15% Long-term capital gains tax: More than a year or 12 months — 10%

However, when it comes to equity opportunities fund, this is not the case. The asset management company (AMC) does not need to pay the capital gains tax for every buys or sell order that the fund manager places. The investor, in this case, pays the capital gains tax based on the duration of his or her investment. Hence, the difference, between the two instances is that, in the case of the first approach, the investor is taxed at the stock level, whereas in the second approach, the investor is taxed at the portfolio level.

How to Invest in Equity Opportunities Fund?

Here are certain steps you should take to make an informed decision regarding your investments in equity opportunities funds:

You should first understand your level of risk tolerance. This process of understanding the level of risk you are willing to be exposed to is known as risk profiling.

Once you have profiled your risk, you need to allocate your assets. You should ideally divide your capital amongst various assets to mitigate your risk.

Then you should study and select funds, which meet your investment goals. You can compare funds offered by different institutions based on their past performance and investment objective.

In the next step you will need to complete formalities such as know your customer (KYC), and other documentations with the fund house you wish to collaborate with

It is advised that you diversify your investments and follow-up regularly to get the best possible returns on your investments

Final thoughts

It is important to read the policy documents carefully before investing since equity opportunities funds have a certain risk associated with them. Reading the policy documents is of the utmost importance to understand what you are investing in, and the facilities you will be receiving with your investment. Although equity opportunities funds have a low risk compared to directly investing in the stock market, you must gain as much knowledge as you can regarding the instrument you wish to invest in. Learning thoroughly about equity opportunities funds will help you make informed decisions and reap higher rewards with lower risks.