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29 Sep 2023
What is Equity?
Ownership in a business is referred to as equity. When people or organizations invest in equity, they acquire a stake in the company in the form of stocks or shares. Equity investors can have the potential to profit from increase in the value of the company's stock as well as from dividends, which is the distribution of company’s profit among shareholders.
Different types of Equity
Since now, the equity meaning is clear, we will try to understand the several types of equity. Below is a comprehensive list of types of equity.
1. Shares: Units of stock is referred to as shares which enables the investor to have ownership interest in the company. Shares can be listed or unlisted, the listed shares are traded on the stock exchange(s). It offers investors a claim on the company's assets and earnings, and its value may rise or fall depending on the company's performance and market circumstances.
2. Equity mutual fund schemes: Equity funds are a type of an investment vehicle that collect funds from various investors and then invest these funds in stocks or equity securities. There are several types of equity funds, including:
a. Large-cap equity funds: Minimum investments -80% of total assets, in equity & equity related instruments of large cap companies. *
b. Mid-cap equity funds: Minimum investments -65% of total assets, in equity & equity related instruments of mid cap companies. *
c. Small-cap equity funds Minimum investments -65% of total assets, in equity & equity related instruments of small cap companies. *
3. Equity Futures: Equity futures are financial agreements between two counterparties that permit to buy or sell a certain stock at a specified date, amount and price.
4. Equity Options: Equity options provide the investors the right, but not the obligation, to buy or sell a stock at a particular price before a specified contract expiration date. This flexibility allows investors to manage risk or profit from market fluctuations.
5. Arbitrage schemes: Arbitrage schemes entail profiting from price differences between markets, frequently by simultaneously buying and selling the same asset. It could involve taking advantage of price variations across various financial instruments, currencies, or even geographical areas. Effective market operations and prompt execution are essential for successful execution.
6. Alternative Equity Investment funds: Alternative methods of investing in equity include exchange-traded funds (ETFs) & index funds. ETFs and index funds track specific indices, and are passively managed.
Features of Equity Investments
In order to better understand the potential advantages of investing in equities, here are a few of its likely benefits:
1. Investing in equities can provide potential for capital gains (increase in value), income through dividends (company profits shared with investors), and voting rights (as a shareholder, can vote on company decisions).
2. Equity holders have the ability to exercise control over the company by voting on important decisions at shareholder meetings, including the election of the board of directors and other significant matters that affect the company.
3. In case of Equity holders their potential losses are generally limited to the amount of their investment. They are usually not personally liable for the company's debts or legal obligations beyond their investment in the company.
4. Bonus shares are additional shares distributed to existing shareholders by a company at no cost. They are usually issued when the company has excess profits or reserves. Bonus shares increase the number of shares held by investors.
5.Listed equity can be easily bought and sold in the stock market whenever required, providing investors with liquidity. This allows investors to quickly convert their investment into cash, without needing to sell the underlying assets or property.
6. A stock split is a corporate action where a company increases the number of its outstanding shares by issuing new shares to existing shareholders. This results in a lower share price (face value) and an increase in the number of shares held by investors while maintaining the total value of the investment.
Things to consider before investing efficiently and safely in equity
Before investing in equity, it's important to consider several factors to ensure that you are investing efficiently and safely.
1. Choose your investment goals and time horizon first before investing in equity. This will assist you in selecting the proper equity investment strategy that supports your objectives.
2. Secondly, determine your level of comfort with risk and make sure you are aware of the potential dangers linked to investments in equity.
3. It's crucial to examine and evaluate the financial standing and operational efficiency of the businesses you are thinking about investing in. Can consider investing in a variety of businesses, across various market capitalization and industries to diversify your portfolio.
4. Keep an eye out for market movements and economic data that could affect the performance of your assets/investments. Keep yourself educated and abstain from making rash investment choices based on feelings or momentary market movements.
5. Finally, consider engaging with a financial advisor or professional to guide you through the investment process and make informed selections that correspond with your goals and risk tolerance.
Based on the understanding of Equity & Equity related instruments and various avenues available for investing in equities, Kotak Mutual fund presents its offerings in the Equity category which may be explored.
Here are some of the options of schemes belonging to the Equity category, from Kotak Mutual Fund’s product suite which can be considered.
** Categorization as per paragraph 2.6 of SEBI master circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/74 dated May 19, 2023 (“Master Circular”)
Data as on August 31, 2023. Past performance may or may not be sustained in future. Data is for Regular plan, growth option. Different plans have different expense structures.
Refer below for complete and detailed performance related disclosures.
To sum up, the equity market is a dynamic and ever-evolving environment. Equity is an essential component of investing that seems to have the potential to provide long-term wealth creation. Before making an investment, investors should be aware of the risks and potential rewards associated with equity investments. These investments can be made through a variety of vehicles, including individual stocks, mutual funds, or exchange-traded funds (ETFs). In general, adding equity to a diverse investing portfolio can be beneficial.
Frequently Asked Questions:
1. Is investing in Equity funds a good option?
For investors who are willing to take on a greater risk, equity funds can be a viable choice. These funds invest in equities of publicly traded firms and can offer diversification benefits to investors who may not have the ability or resources to invest in individual stocks of companies. Before investing, it's crucial to carefully assess the fund's investment strategy, scheme’s risk levels, investor’s risk appetite, performance history, costs, and other aspects. Investors should be ready for changes in the value of their investment because past performance does not guarantee future outcomes.
2. Equity funds or Debt funds - What should you invest in?
Assuming that the debt & equity meaning is clear, an investor can decide the level of risk that they are willing to take, in order to determine whether they should invest in equity or debt funds. Equity funds may be preferred by investors who have a higher risk tolerance, are ready to put up with volatility, and strive for possibly better potential long-term benefits. On the other side, investors that value capital preservation and have a relatively lower risk tolerance can favour debt funds.
It's crucial to remember that neither debt nor equity funds are risk-free, so before making any purchases, investors should carefully assess their investment objectives and risk tolerance. Before investing in any mutual fund schemes, it's also important to do an extensive research and speak with a financial advisor.
4. What are Growth and Income Distribution cum capital withdrawal (“IDCW”) Options in a Mutual Fund Scheme?
Mutual fund investors usually have two options for receiving returns on their investments: Growth and IDCW options. Upon choosing the growth option, the fund's gains are reinvested, which raises the fund's net asset value (NAV). In the IDCW option, the fund pays out gains as dividend on a recurring basis to investors. IDCW options may be further categorized into IDCW payout and IDCW reinvestment options, where investors can choose to receive cash pay-outs or have the dividends reinvested back into the fund. Investors should consider their investment goals and tax implications before selecting growth or IDCW option.
5. How does investing in Equity funds help diversify their risks?
Equity funds can help investor diversify the risks by investing in a portfolio of stocks across different sectors, industries, and geographical regions. This helps to reduce the impact of any negative events affecting a particular stock or sector on the overall portfolio. To further reduce the risk, there are different types of equity funds that can diversify across several market capitalizations (small cap, mid cap, and large-cap). It's important to remember that diversification does not ensure success or offer protection from potential losses pertaining to market movements.
Disclaimers:
* Categorization as per paragraph 2.6 of the Master Circular. As per paragraph 2.7 of the Master Circular, Large Cap- 1st -100th company in terms of full market capitalization, Mid Cap: 101st -250th company in terms of full market capitalization, and Small Cap: 251st company onwards in terms of full market capitalization as per the list of stocks as provided by AMFI.
Kotak Bluechip Fund
(Large cap fund - An open-ended equity scheme predominantly investing in large cap stocks)
The above riskometer is based on the scheme portfolio as on August 31, 2023. An addendum may be issued or updated on the website for new riskometer.
Scheme Performance Details as on August 31, 2023.
Kotak Emerging Equity Fund
(Mid cap fund - An open-ended equity scheme predominantly investing in mid cap stocks)
The above riskometer is based on the scheme portfolio as on August 31, 2023. An addendum may be issued or updated on the website for new riskometer.
Scheme Performance Details as on August 31, 2023.
Kotak Small Cap Fund
(Small cap fund - An open-ended equity scheme predominantly investing in small cap stocks)
The above riskometer is based on the scheme portfolio as on August 31, 2023. An addendum may be issued or updated on the website for new riskometer.
Scheme Performance Details as on August 31, 2023.
Kotak Equity Opportunities Fund
(Large & mid cap fund - An open-ended equity scheme investing in both large cap and mid cap stocks)
The above riskometer is based on the scheme portfolio as on August 31, 2023. An addendum may be issued or updated on the website for new riskometer.
Scheme Performance Details as on August 31, 2023
(An open-ended equity linked saving scheme with a statutory lock in of 3 years and tax benefits)
The above risk o meter is based on the scheme portfolio as on August 31, 2023. An addendum may be issued or updated on the website for new risk o meter.
To view the performance details of the other Funds managed by the Scheme’s Fund managers click on the link below:
https://www.kotakmf.com/documents/Funds-Managed-by-Fund-Managers-Regular-Plan
The document is not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
The document includes/may include statements/opinions which contain words or phrases such as "will", "believe", "expect" and similar expressions or variations of such expressions, that are forward looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with the statements mentioned with respect to but not limited to exposure to market risks, , general economic and political conditions in India and other countries globally, which may have an impact on services and/or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. Investors should make any investment decision as per their risk appetite and investment objective. Kotak Mahindra Asset Management Company Limited/ Kotak Mutual Fund is not guaranteeing or forecasting or promising any returns/future performances.
Past performance may or may not be sustained in future. Investors may consult their financial advisors and /or tax advisors before making any investment decisions.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
