Equity funds Portfolio
Allocation
Advantages Drawbacks Risk-return profile Suitability for investors Preferred investment duration
Index funds Track a key stock market index, like BSE Sensex or Nifty. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weightages. A convenient way of investing in equity index. Since it is more of a passive strategy of portfolio management, the returns are highly linked with index returns. In India, active funds offer higher risk-adjusted returns than index funds. Low risk-return profile amongst equity funds. Suitable for investors who wants to earn index linked returns. Equity index investing should preferably be for long-term.
Dividend yield funds Similar to the equity diversified funds except that they invest in companies offering high dividend yields. Since dividend yield stocks are less volatile such funds are associated with low level of risk. Less risky than a diversified equity fund. As appreciation in the value of a dividend yield stock is not very high, these funds offer lower return than equity diversified funds. Low risk-return profile compared to equity diversified fund. Apt for conservative equity investor. Long term horizon is preferred (at least 3 years)
Equity diversified funds Invest 100% of the capital in equities spreading across different sectors and stocks. -Purely diversified across stocks and sectors.

Such funds are known to be less volatile than sector and thematic funds.
-Limits the return potential compared to other aggressive equity funds such as sector and thematic funds. Diversification across sectors moderates the risk-return profile as compared to sector and thematic funds. Suitable for an equity investor seeking to invest in moderately aggressive scheme within the category of equity funds. Long term horizon is preferred (at least 3 years)
Thematic funds Invest 100% of the assets in sectors which are related through some theme.

Example-An infrastructure fund invests in power, construction, cements sectors etc.
Offer higher potential returns than equity diversified funds by taking advantage of boom in various sectors. High risk is involved because if the selected sectors perform poorly, the fund suffers. High risk and high return category.

Less aggressive than sector funds.
Suitable for aggressive investors. Since they invest in a set of sectors and industry cycle of all sectors may not be of the same duration, it is preferred that investment should be made for ideally 3-5 years.
Sector funds Invest 100% of the capital in a specific sector.

Example- A banking sector fund will invest in banking stocks.
Have potential to offer higher returns than other diversified equity funds by taking advantage of boom in a particular sector. High risk is involved because if the sector performs poorly, the fund suffers. Falls in high risk-high return category. Suitable for aggressive investors. Investment in sectors funds should be made with a long-term horizon; say at least five years.
ELSS Equity funds that offer tax benefits to investors. Offer tax deductions u/s 80C up to Rs. 1 lakh. Have the lowest lock-in period with high return potential among all tax saving instruments. Low liquidity due to 3-years’ lock-in Depends upon funds portfolio concentration and exposure to various market capitalisations Suitable for investors willing to enjoy tax benefits with equity-linked returns Since there is a lock-in period of 3 years, investment in ELSS funds is made for a period of 3 years or more.