However, it is equally important to choose the right equity mutual fund scheme. Your choice of mutual fund scheme should match your goals, investment horizon and risk profile. For example, if you are a conservative equity investor investing for a five-year goal, you may consider investing in largecap mutual fund schemes.
If the investor wants to create the corpus without much volatility, he may also consider investing in aggressive hybrid schemes. Aggressive hybrid schemes invest in a mixed portfolio of equity (65-80 per cent) and debt (20-35 per cent). The debt part of the scheme offers stability to the portfolio during volatile times.
Investors with moderate risk profile can consider investing in multicap schemes that invest across market capitalisations. These schemes are riskier than largecap schemes but have the potential to offer superior returns.
Aggressive investors with a high risk tolerance and longer investment horizon can consider investing in midcap and smallcap schemes. These schemes invest in mid-sized and small-sized companies and can turn highly volatile during a bad phase in the market. However, these companies can grow into large companies and reward investors with extra returns for the extra risk they are taking.
Sector schemes or thematic schemes are meant for sophisticated or high networth investors. These schemes can help investors to take exposure to a sector or theme that they want to bet. However, mutual fund advisors believe that investors should invest in these schemes only if they can time their entry and exit in these schemes and have intimate knowledge about the sector.
High net worth investors can also look at international schemes to diversify their portfolio across geographies. However, mutual fund advisors believe that small investors should give these schemes a miss as it would dilute total returns from their portfolio.