types of funds

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Types of Funds

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Post on 17-Aug-2014

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Once you know what you want, what’s left is to just pick and choose! Here’s a presentation that guides you through the different types of funds.

TRANSCRIPT

Page 1: Types of funds

Types of Funds

Page 2: Types of funds

Equity Funds

Equity funds are created with the objective of generating long-term growth and capital appreciation

Given that equity as an asset class may be volatile in the short term, therefore its recommended that an investment in equity should always be with long term horizon

Equity funds differ predominately in the manner in which they select the market segments and stocks that would form the portfolio

Page 3: Types of funds

Diversified Equity Funds Diversified Equity Funds tend to invest across a broad range of equity shares, with the objective of generating returns better than its respective benchmark

Diversified equity funds are not biased in terms of the sectors they choose, the size of the stock they select, or the investment style they may pursue

Investors, who like to hold a fund that invests in equity shares without any specific bias, tend to choose diversified equity funds

Page 4: Types of funds

Midcap, Small Cap and Micro Cap Equity Funds 

Midcap, Small Cap, and Micro Cap Equity Funds feature a bias determined by the size of the companies in which they invest

Large companies tend to be well established in their businesses with stable growth and earnings

The smaller companies tend to exhibit higher growth on earnings depending on the business opportunity, ability to grow, management style, and profit margins

However, smaller companies tend to also feature a higher risk of inability to withstand downturns, inability to scale up risk of business failures, and lower liquidity in the stock market.

Page 5: Types of funds

Thematic Equity Funds Thematic Equity funds tend to choose their stocks based on a particular theme, which the fund managers believe will do well during a given period of time, based on their understandings of macro trends and developments

Infrastructure funds, commodity-stocks based funds focusing on companies in the public sector, funds focusing on business driven by consumption patterns, and service sector funds are all examples of thematic equity funds

These funds run a higher concentration risk compared with a diversified equity fund, but may also offer a higher return if the themes they focus on tend to do better than the overall market

Page 6: Types of funds

Index funds Index funds are passively managed funds where the fund manager does not take a call on stocks or the weights of the stocks in the portfolio, but simply replicates a chosen index

Replicating an index means holding all the same stocks in exactly the same weightage as in the index

Investors who do not like to take a risk on the fund manager, but accept a return that is associated with an index, choose index funds

Index funds are also popular since they cost less. The expense ratio of an index fund is about 0.75% while a normal equity fund could be as expensive as 2.5%

Page 7: Types of funds

Sector Funds Sector Funds are equity funds that focus on a particular sector

They feature concentrated risks and are suitable for investors willing to take a view on the performance of the given factor

Sector funds are available for sectors such as industry sectors, information technology, banking, pharmacy, and FMCG

If the sector is expected to do well, given a confluence of favorable policy and macro environment, funds tend to launch such sectors funds

Sector funds have a high level of concentration risks

Page 8: Types of funds

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