m.Stock by Mirae AssetOpen Demat Account
m.Stock by Mirae Asset
 Everything You Need to Know About Equities

Table of content

Everything You Need to Know About Equities

The financial acumen of the modern Indian is higher than ever before. People are understanding the differences between saving and investing and flocking to invest in various products to generate long-term wealth. When you talk about building a fund or corpus for your latter years, the term equity is bound to come up multiple times. So, what are equities? In this article, we discuss the meaning of equity, its different types, and how you can benefit by investing in them.

What are Equities?

Simply put, equities are shares of a company. When you buy the shares (or equities) of a company, you get partial ownership of it as well, in direct proportion to the number of shares you hold. It can get you voting (ballot) rights and have a say in company matters too. Simply getting a percentage of ownership in the company is known as ‘common equity’. When you get additional rights, such as priority over common equity holders when it comes to dividends or asset liquidation, this is referred to as ‘preferred equity’. Now, if the company were to liquidate all its assets and eliminate all outstanding debts, the remaining amount that would be payable to you would be the actual equity that you own.

Equity Types and Forms

Now that you know the meaning of equity, let us turn our attention to its various types. Here are some of the most popular ones.

Stocks/Shares

The most direct type of equity is in the form of shares of a company. These can be bought in the primary market (for example, when an IPO is launched and the company offers you the chance to bid for its shares) or in the secondary market (shares bought from other shareholders looking to sell). Market volatility is an aspect that all investors need to be mindful of. While investing in shares can get you high returns, the element of risk is always there. Buy shares after carefully evaluating the company’s current performance, growth prospects, and your own risk tolerance.

Equity Mutual Funds

Mutual funds offer you an indirect way to invest in equities. When you invest in an equity fund you get corresponding units with a market-driven Net Asset Value (NAV). The fund goes on to invest in shares of a collection of various companies. Since the fund manager tracks the overall investments and manages the periodical reallocation of assets, many investors find this method less strenuous and more convenient. Moreover, the ability to invest small yet regular amounts via SIP helps cultivate a healthy investment habit without straining your monthly budget. It is no wonder that there are over 6 Cr active SIP mutual fund accounts in the country, as per the Association of Mutual Funds in India (AMFI).

With such immense popularity, it is hardly surprising that a vast array of mutual funds exist today. Equity funds, in particular, are the most popular of the lot and are available in the following categories.

  • Large-Cap Funds 

    These funds invest in the shares of blue-chip companies, specifically the top 100 companies in India as per their market capitalisation. Due to the size and stability of the companies, large-cap equity funds are deemed to have a lower risk exposure than the other equity categories and offer a more predictable, stable income.

  • Mid-Cap Funds 

    Mid-cap funds invest in companies that rank between 101-250 as per the market cap with a minimum exposure of 65% of the total underlying assets. While being riskier than large-cap funds, they can offer a higher potential for growth and returns.

  • Small-Cap Funds 

    Investing in smaller companies can be quite risky. However, it can also present an opportunity to generate higher-than-average returns.

  • Multi-Cap Funds 

    Multi-cap funds were created to offer investors the best of all worlds. They invest across all types of companies and reallocate assets based on prevalent market conditions.

Equity Futures & Options (F&O)

While equity in itself is an asset class that gives your ownership rights of the company, equity futures and options are derivative contracts. Their value is derived from the prevalent price of the stock. In essence, they are contracts with expiration dates. While in equity options, you have the option of exercising your call, you do not have any obligation to do so. So, if the price doesn’t move as per your expectations, you can let the contract expire without taking any action on it. In the case of equity futures, though, the obligation to complete the trade needs to be met before the expiry date of the contract.

Alternative Investment Funds (AIF)

Alternative Investment Funds, such as hedge funds, private equity funds, venture capital etc., were developed to cater to people with higher disposable incomes and those looking for new, innovative investment tools. These are usually preferred by high net-worth (HNI) people and firms who can take higher risks and put a large sum as upfront capital. The booming Indian startup environment has been providing an attractive investment playground for such equity investors.

Why Invest in Equities?

Investing in equities offers a variety of benefits, such as:

  • Potentially High Returns 

    Equity investment is one of the most preferred options to build capital in the long run to meet your various goals in life. Apart from a higher return rate, many companies also offer regular dividends to supplement your earnings.

  • Offset Inflation Costs 

    With the cost of living increase each year, it is always difficult to anticipate the actual value of your current earnings, say in 10 years from now. The higher equity return can help you offset the negative impact of rising inflation while helping you live the lifestyle you desire.

  • Flexibility And Convenience 

    Thanks to web-enabled global investment platforms and easy access to the internet, stock trading has become quick and simple. You can open an online demat account in a matter of a few minutes and seamlessly start trading or investing for your future. Equity mutual funds give you the added convenience of investing through SIP.

  • Liquidity 

    Direct equity investments, in the form of shares, can be bought and sold anytime in the stock market. This makes it a highly liquid form of investment that can be encashed anytime you need or want to.

  • Tax Benefits 

    By investing in Equity Linked Savings Scheme (ELSS) funds, you can get equity exposure while getting a deduction on your taxable income up to ₹ 1.5L per annum under the Section 80C of the Income Tax Act of India.

Do note, though, that equities are market-driven, and the performance of the stock or fund can swing anytime. It is important to do your due diligence before investing, build a goal-based investment strategy, and stay patient during turbulent times.

SIPs let you invest small amounts regularly, making it easier to stay consistent with your goals. With time, your money grows faster through compounding, helping you get the most out of your investments. Try our SIP Calculator to see how your money can grow and make smarter plans for your future.

More Related Articles

Can Mutual Fund Schemes Invest in Upcoming IPOs?

Can Mutual Fund Schemes Invest in Upcoming IPOs?

date-icon18 July 2025 | 7 mins read

Can Mutual Fund Schemes Invest in Upcoming IPOs? - H1 Initial Public Offerings (IPOs) have become a buzzword among investors looking for high-growth opportunities. Whether it’s a unicorn startup going public or a reputed company entering the equity market, IPOs attract substantial interest. But what about mutual funds — can they participate in IPOs? And if yes, how does it impact you as an investor in a mutual fund? This article explores the role of mutual funds that invest in IPOs, the process behind such investments, and how you can benefit from this strategy. You’ll also gain insights into how fund managers evaluate IPO opportunities and which mutual funds are more likely to invest in them. Role of Mutual Funds in Equity Markets - H2 Mutual funds play a vital role in India’s equity markets. Managed by professional fund managers, these pooled investment vehicles collect money from multiple investors and allocate it across a portfolio of stocks, bonds, or other assets based on the fund's mandate. In the context of equity investing, mutual funds: Provide diversification to small investors Help in price discovery and market depth Act as long-term institutional investors Reduce risk through strategic asset allocation Given their market presence and influence, mutual funds also participate in IPOs, often subscribing to large portions of new issuances. But this activity is more nuanced than simply bidding for shares. Are Mutual Funds Allowed to Invest in IPOs? - H2 Yes, mutual funds in India are allowed to invest in IPOs — both in the primary market (where shares are first issued) and in the secondary market (where stocks are traded after listing). This means mutual funds can apply for shares during an IPO’s book-building process just like retail investors, high-net-worth individuals (HNIs), and institutional investors. SEBI regulations allow fund managers to allocate a portion of the fund’s assets to IPOs, provided the investment aligns with the scheme's objectives and risk profile. For instance: A large-cap fund may only invest in IPOs of companies expected to be included in large-cap indices A multi-cap or flexi-cap fund has more flexibility to take exposure across market capitalisations, including IPOs An ELSS fund (Equity-Linked Savings Scheme) can also participate in IPOs if it aligns with its tax-saving and equity investment objective So, the short answer is: Yes, mutual funds can and do invest in IPOs — but not all funds, and not always. Why and When Do Mutual Funds Invest in IPOs? - H2 Investing in IPOs offers mutual fund managers several strategic advantages, including: 1. Access to Early Growth Potential - H3 Many IPOs are of young, fast-growing companies. By investing early, mutual funds aim to capture the growth upside before the stock gains mainstream popularity. 2. Price Arbitrage Opportunities - H3 If a mutual fund believes that the IPO is underpriced relative to its intrinsic value, it may invest with the intent of benefiting from listing gains or long-term appreciation. 3. Portfolio Enhancement - H3 Some IPOs bring fresh sector exposure or innovation to the market. Fund managers may invest to diversify or rebalance the portfolio with new-age businesses, like fintech or EV startups. 4. Long-Term Bets - H3 Fund managers often look at IPOs with a long-term lens. The goal isn’t always listing gains but building a position in a company expected to perform well over years. 5. Demand and Liquidity Trends - H3 In bullish markets, IPOs tend to be oversubscribed and see strong listing premiums. Mutual funds may participate to ride the market momentum, especially when investor confidence is high. Factors Fund Managers Consider Before Investing in IPOs - H2 While IPOs are exciting, they are also risky and speculative, especially for companies with no prior listing record. Fund managers conduct rigorous due diligence before deciding to allocate your money to an IPO. Here are the key factors considered: 1. Company Fundamentals - H3 This includes examining the company’s: Revenue and earnings trends Debt levels and capital structure Profit margins and business scalability Competitive advantage and market share 2. Valuation Metrics - H3 Fund managers analyse: Price-to-Earnings (P/E) ratio Price-to-Book (P/B) ratio Enterprise Value to EBITDA (EV/EBITDA) These are compared with listed peers in the same sector. 3. Promoter and Management Track Record - H3 A critical evaluation is made on the credibility, governance standards, and historical performance of the promoters and top management. 4. Utilisation of IPO Proceeds - H3 Fund managers study how the company plans to use the funds—whether for debt repayment, expansion, or general corporate purposes. 5. Macroeconomic and Sector Trends - H3 Sectoral outlooks, regulatory policies, and broader market sentiments also influence IPO investment decisions. 6. Anchor Book Participation - H3 Strong interest from anchor investors (like global funds or sovereign wealth funds) signals confidence in the issue, making it more attractive for mutual fund participation. Best IPO Mutual Funds: What to Look For - H2 If you're keen on gaining exposure to IPOs through mutual funds, it's important to choose the right type of fund. While there’s no official category called “IPO mutual funds,” some schemes actively participate in upcoming IPOs. Here’s what you should look for when selecting such a fund: 1. Fund Category and Investment Mandate - H3 Start by checking the category of the fund. Flexi-cap, multi-cap, and mid-cap funds generally have more leeway to invest in IPOs. These funds are not restricted to a single market capitalisation and often aim to capture high-growth opportunities, making them ideal for IPO exposure. 2. Track Record of Participating in IPOs - H3 Review the fund’s portfolio history. Some mutual funds consistently allocate a portion of their assets to new listings. You can find this information in the fund’s monthly factsheet or portfolio disclosure. Look for funds that have a pattern of investing in IPOs over time—not just as a one-off move. 3. Fund Manager's Experience and Strategy - H3 A skilled fund manager makes a significant difference. The manager's ability to evaluate IPO valuations, industry potential, and company fundamentals is crucial. Look for funds managed by professionals with a proven track record in equity investing and a sound IPO selection approach. 4. Diversification and Risk Management - H3 An ideal fund won’t rely heavily on IPOs alone. Instead, it will use IPO investments as part of a broader equity strategy. Ensure that the fund holds a well-diversified portfolio alongside its IPO allocations to reduce volatility and balance risk. 5. Consistent Performance Over Market Cycles - H3 While past performance isn’t a guarantee of future returns, funds that have consistently performed well across different market cycles often reflect strong management and strategy. Look at long-term performance metrics like 3-year or 5-year returns instead of just recent gains. 6. Transparency and Reporting - H3 Good IPO-investing funds are transparent about their holdings. Choose funds that provide detailed disclosures about their portfolio, including new IPO allocations, so you can track how your money is being deployed. Also, read the scheme information document (SID) to understand the fund’s mandate and whether it allows active IPO participation. Should You Invest in a Mutual Fund That Invests in IPOs? - H2 Pros: Access to IPOs without applying individually Professional due diligence and analysis Built-in diversification Potential to capture high-growth opportunities Cons: IPO investments may not always succeed May increase portfolio volatility Returns can be affected by market timing and sentiment If you're a long-term investor, funds that occasionally invest in IPOs can be a good addition to your portfolio — but don’t chase IPO exposure alone. Always assess the fund holistically. Conclusion - H2 Yes, mutual fund schemes in India can and do invest in IPOs, but they do so strategically — not emotionally or impulsively. Fund managers assess multiple factors before deciding to put your money in newly-listed companies. As a retail investor, you benefit from their expertise and risk management process without having to analyse IPOs on your own. If you're looking for exposure to IPOs but want to avoid direct stock-picking, investing in a mutual fund that invest in IPO offers a smart, diversified route. However, always match the fund’s strategy with your risk tolerance, time horizon, and financial goals.

Read More
Mistakes People Make While Investing and How to Fix Them

Mistakes People Make While Investing and How to Fix Them

date-icon10 July 2025 | 7 mins read

Investing can be one of the most effective ways to build wealth over time. Whether you’re investing in mutual funds or stocks, the goal is simple: earning returns that beat inflation and help you achieve financial freedom. However, investing isn’t just about selecting the right stocks or funds — it’s also about avoiding costly mistakes that can slow your progress down.

Read More
How Can ELSS Funds Be Redeemed? Rules for ELSS Withdrawal

How Can ELSS Funds Be Redeemed? Rules for ELSS Withdrawal

date-icon26 June 2025 | 9 mins read

Equity-linked Savings Schemes (ELSS) are a type of mutual fund in India that provide tax relief under Section 80C of the Income Tax Act. ELSS have a three-year lock-in period, during which the amount invested cannot be withdrawn. It is important for investors to know the ELSS redemption process, rules, and tax implications while making their financial plans. This article explores the intricacies of ELSS mutual fund redemption, shedding light on the procedures and considerations.

Read More
View All

FAQ

What is shareholder’s equity?

Shareholders' equity represents the portion of a company's assets that are owned by its shareholders after subtracting all of its liabilities. In other words, once the company pays off all its debts and other obligations, the residual value of the company's assets is known as equity. In the stock market, equity refers to the shares you hold of a specific company.

How can I invest in equities?

You can invest and trade in equities through various direct and indirect instruments, such as individual stocks, mutual funds, exchange-traded funds (ETFs), alternative investment funds, equity futures and options, and index funds. Consider your investment objectives, risk tolerance, and time horizon when choosing an equity investment strategy.

What are the risks associated with equity investments?

Typical equity-related risks include market volatility, company-specific risks, and macroeconomic risks. Stock prices can fluctuate based on factors such as interest rates, regulatory or policy changes, geopolitical events, and a shift in consumer sentiment. But when backed by thorough research and a clear understanding of your risk tolerance, the benefits of investing in equities outweigh the risks.