Equity Funds – Equity Mutual funds

Equity funds basically invest in equity shares of companies. They can invest either through IPO or through secondary market route. They can also invest in unlisted companies i.e. Private Equity subjected to a cap and rules by SEBI. Funds buy stakes in unlisted companies usually at very low prices to maximize their returns whenever these companies go public (If the IPO is a success share price on listing day goes high thereby the fund companies which have shares in the company get benefited). 

Equity funds are generally considered the riskiest among mutual funds by virtue of the risks associated with equity. Within equity funds investment can be done to suit different risk appetites, investment objectives and strategies adopted by the fund.

Investors of these funds need to know the different risks associated with equity funds. Some fund management companies provide the market cap data of the fund’s investments. This gives an idea on the risk taken by the fund manager. Market cap data of a fund is the percentage of investment by the fund across different market capitalization companies.

For example say fund A invests 80% in large cap companies, 10% in mid cap companies and the remaining 10% in small cap companies. By looking at this data we can say that fund A is not that much risky since it has major investments in large cap companies.

Please go through Systematic Risk post to have an idea of risk measurement in portfolio of securities. I will try to cover different risk measures of a fund like R Squared, Beta, Standard Deviation, Sharpe ratio, Info ratio etc.

 

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September 6, 2009 | Filed Under Mutual Funds 

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