Equity funds are a category of mutual funds that invest primarily in shares of companies. There are different types of equity funds e.g. Index funds that invest in a particular index e.g. Nifty/Sensex and mirror the performance of the index over time. Non - index based funds are managed by fund managers actively as per objective of the fund.
There are Large Cap, Small Cap and Mid Cap equity funds.
A Large cap fund invests 80% of its corpus in shares of large cap companies i.e. companies with a market capitalization above a threshold e.g Rs, 20,000 crores.
Large cap funds are less volatile and give stable returns and dividends as the business is established and mature.
A Mid Cap fund invests at least 65% of its corpus in shares of mid cap companies i.e. companies with market cap between Rs 5000 crore and Rs 20,000 crore. Mid cap funds have the potential to give higher returns as compared to large cap but the risk is also higher as mid cap companies are in the early phase of growth and business is more prone to external factors e.g. recession, sectoral changes, govt regulation, competition, costs etc.
A Small cap fund invests in shares of small and medium sized companies with market cap less than Rs 5000 crores. These companies are in very nascent phase of business with highest potential for growth but high risk as well due to uncertainty in future and vulnerability.