Top Performing Equity Mutual Funds in India in 2022

Equity mutual funds invest a significant portion of their corpus in equity or equity-related instruments. There are different categories of equity mutual funds available for investment. 

Every fund is distinct from each other based on its investment objective and underlying assets. Fund managers of top performing mutual funds usually invest in equity instruments of companies of different market capitalisations in hopes of getting substantial returns. 

Top Performing Equity Mutual Funds to Invest in 2022       

Here are some of the best performing equity mutual funds to invest in 2022: 

What Is an Equity Mutual Fund?       

According to regulations of the Securities and Exchange Board of India (SEBI), an equity mutual fund must invest at least 65% of its total fund corpus in equity or equity-related instruments. Fund managers can invest the remaining corpus in securities of their choice. 

There are sub-classifications of equity mutual funds according to market capitalisation, style of investment, and sector specific investments. These funds are slightly risky in nature in comparison to other mutual funds. This is because of the inherently volatile nature of equity securities that they invest in. However, they have a higher return potential than debt or hybrid mutual funds. 

Also Read: Equity Mutual Funds: Definition, Types, Benefits, Returns & Taxation Policy

How Do Equity Mutual Funds Work?

Investors pool their money in a particular equity mutual fund scheme through the lump-sum or SIP method. After that, the fund managers invest this money into different equity or equity-related instruments as per his/her strategy and the fund’s objectives. 

Based on the fund manager’s role, equity funds are of two types – passive and active equity funds. In case of the former, the fund manager plays no active role in operating the fund. Instead, they try to replicate the returns of a benchmark index and take appropriate actions. 

On the other hand, in an active equity mutual fund, the fund manager takes all important decisions like selecting the type of stocks and deciding on an investment strategy. Every decision taken by a manager affects the net profitability of the fund. The fund managers of an equity mutual fund invest the remaining corpus in debt instruments to diversify the portfolio and keep some amount in cash to cater to redemption requests. 

Learn more about Equity Mutual Funds: Definition, Types, Benefits, Returns & Taxation Policy

The value of these funds depends on their NAV or net asset value, which changes as per fluctuations occurring in the equity instruments during trading hours. NAV is simply the price you pay for a unit of the mutual fund. For example, if the NAV of a mutual fund is Rs. 50, and you wish to buy 50 units of the mutual fund, you will have to invest Rs. 2500. The NAV gets updated at the end of each trading session. 

Who Should Invest in Equity Mutual Funds?

You can consider investing in these mutual fund schemes if you fulfil the following parameters:

• Risk

Due to inherent turbulence and volatility of equity instruments, an equity mutual fund is volatile and thereby risky. It may not be a viable investment alternative if you are a risk-averse investor looking for stable returns. On the other hand, you can invest in these funds if your risk tolerance level is high and you are indifferent to market fluctuations. 

• Timeline

Equity mutual funds come with a long-term investment horizon. You can consider investing your money in these funds only if you have long-term financial goals. If you have some surplus funds that you can park for 5- 7 years, equity mutual funds might be a good option for you. 

• Knowledge 

As equity funds invest in a range of equity instruments across different categories, you must have decent knowledge about the working of stock markets and prepare feasible entry and exit points. You should constantly monitor the markets and their trends and make necessary adjustments to your investment portfolio. Therefore, it may be a viable investment plan for experienced investors who have knowledge about the working of the stock market. 

Advantages of Investing in Equity Mutual Funds  

Here are some advantages of investing in top mutual funds in India in the equity category:

• High return potential

Equity mutual funds provide opportunities for getting higher returns than debt or hybrid funds. The value of stocks may increase aggressively due to favourable market conditions. This will lead to a corresponding increase in the value of particular mutual fund schemes. As a result, you may witness a considerable return on your investment amount. 

• Tax benefits

An equity fund is the only type of mutual fund scheme which provides some form of tax benefits to its investors. ELSS, or equity-linked savings scheme, is an equity fund that provides tax deductions of up to Rs. 1.5 lakh to prospective investors under Section 80C of Income Tax Act, 1961. This provision is immensely beneficial for investors as it will help them in reducing their tax liability. 

• Diversification

These funds allow several opportunities for diversification of your investment portfolio. Fund managers can invest in equities of large, small, or mid cap companies after studying the objectives of different equity mutual funds. Investing in different categories of companies acts as a cushion against market turbulence, which will reduce the level of capital depreciation. 

• Inflation-indexed returns

One of the biggest advantages of an equity fund is its potential to provide inflation-indexed returns to investors. You can select some of the best mutual funds to invest in the equity class and put your money in for the long term. At the end of the investment timeline, you will witness an increase in the real value of your fund, which will probably beat inflation prices. 

Taxation of Equity Funds

The equity funds are subject to taxation under several provisions of the IT Act, 1961. The taxation occurs based on the holding period of mutual fund units. 

In case the holding period of mutual fund units is less than 12 months, all gains received from the sale of these funds are taxable under short term capital gains tax. On the other hand, if the holding period of these funds crosses the 12-month mark, proceeds from the sale of such units are subject to long term capital gains tax or LTCG. The rate of taxation on STCG and LTCG have been discussed below:

Things to Consider before Investing in Equity Funds

You should consider the following points before taking a decision regarding investment in equity funds: 

• Risk Appetite

Every investment instrument comes with some level of risk. An equity mutual fund is a high-risk instrument because the majority of investment is done in equities, whose prices are highly prone to market fluctuations. Therefore, you must analyse your risk appetite before taking a plunge into these schemes.

• Investment goals

While investing in equity funds, you must consider whether the financial objectives of these funds are in sync with your individual goals. Equity funds are useful for fulfilling long term goals, and therefore, you can invest in these schemes if you also have a long-term investment horizon. 

• Expense ratio

It is a cost levied on a particular mutual fund scheme by AMCs to cover the operational cost of running these schemes. The expense ratio will cover the manager’s fee, distribution expenses, infrastructural expenses, etc. It has a direct bearing on the fund’s profitability, and therefore you must thoroughly analyse the expense ratio and invest in those schemes which come with a low expense ratio.   

Final Word

Equity funds are an efficient investment instrument that allows investors to earn significant returns over the investment timeline. Some of these funds, such as ELSS, also help investors save on taxes. If you wish to invest in the top performing mutual funds, you can consider investing in equity mutual funds after doing thorough analysis and research. 

Frequently Asked Questions