Equity Other Funds

An Equity Other Fund is an equity-based mutual fund that is not classified under any of the standard equity scheme categories defined by the Securities and Exchange Board of India, such as large cap, mid cap, small cap, flexi cap, multi cap, focused, value, dividend yield, ELSS, or sectoral/thematic funds.

 Such funds provide asset managers with the flexibility to implement varied investment strategies without being constrained by predefined category norms. These may include special situations, dividend yield, event-driven, quantitative, or other proprietary strategies that do not fit within standard classification frameworks.

 SEBI requires asset management companies (AMCs) to state the investment objective, strategy, and risk profile of the fund in the Scheme Information Document (SID) and the Key Information Memorandum (KIM).

 To qualify as equity-oriented funds for taxation, such schemes typically maintain a minimum of 65% allocation to equity and equity-related instruments. Unlike large-cap or mid-cap funds, they are not bound by market-cap-based allocation limits or sector-specific requirements.

This flexibility enables the fund to pursue opportunities beyond standard category constraints. Portfolio composition can vary significantly based on the fund’s stated strategy.

Investors should thoroughly examine the SID to understand the fund’s investment structure, risk factors, and the relevant performance benchmark. The fund may offer diversification benefits but carries execution risk and market-related risks.

How Does an Equity Other Fund Invest? 

An Equity Other Fund operates according to its stated investment strategy. Fund managers may utilize quantitative and factor-based screening, along with event-driven strategies such as corporate restructurings, mergers, or turnaround opportunities. The fund follows a defined procedure for stock selection, sector allocation and portfolio rebalancing.

Portfolio construction combines fundamental research, financial ratio analysis, macroeconomic assessment and industry evaluation. Fund managers may dynamically adjust allocations based on market opportunities and the fund’s strategic mandate.

The Net Asset Value (NAV) fluctuates with changes in market prices of the underlying equity instruments. These funds may have the flexibility to deviate significantly from their stated benchmark composition. Therefore, performance may differ from traditional diversified equity funds or indices. Investors should review the fund’s historical performance and strategy disclosures before investing.

Advantages & Disadvantages of Investing in Equity Other Funds

Equity Other Funds offer strategic flexibility and differentiated equity exposure. However, the absence of strict category-specific allocation requirements also presents unique considerations for investors.

Advantages

1. Strategic Flexibility
   The fund is not bound by market-cap or sector allocation requirements under specific categories defined by the Securities and Exchange Board of India and may pursue an opportunity-based strategy.
2. Differentiated Approaches
   These funds use quantitative models, factor-based screening or special situations investment, which provide a distinctive equity exposure compared to traditional funds.
3. Potential for Opportunistic Returns
   If the strategy identifies undervalued or overlooked opportunities, the fund can capitalize on market inefficiencies not addressed by mainstream categories.
4. Portfolio Diversification
   These funds can complement existing equity holdings, providing exposure to strategies that may not correlate closely with large-cap or mid-cap funds.

Disadvantages

1. Strategy-Specific Risk
   Success depends on the effectiveness of the chosen strategy. Returns may be negatively impacted by market conditions or analytical errors.
2. Higher Volatility
   Flexible allocations and concentrated positions can lead to significant NAV fluctuations, particularly during market stress.
3. Limited Comparability
   Performance comparison with other schemes or indices may be difficult due to diverse strategies.
4. Execution Dependency
   The expertise of fund managers and adherence to the stated strategy determine the fund’s potential to achieve its objectives.

Who Should Invest in an Equity Other Fund?

Equity Other Funds are designed for investors seeking strategic or differentiated equity exposure beyond conventional categories. Suitability can be assessed on the basis of risk appetite, duration of investment and portfolio allocation targets.

1. Experienced Investors
   Those familiar with equity market volatility and strategy-driven investment approaches may assess these funds after reviewing the SID.
2. Diversification Seekers
   This category can be used by investors who already hold large-cap or diversified portfolios to add strategic exposure in equities.
3. Long-Term Investors
   A holding period of five years or more may allow the fund’s strategy to unfold, given the cyclical nature of returns.
4. Comfortable With Benchmark Deviations
   Equity Other Funds are not constrained by traditional indexes. Investors should be prepared for some phases of underperformance relative to benchmarks.
5. Structured Portfolio Allocators
   Strategic asset allocation investors can include the funds as a supplement to core holdings and adjust the risk exposure.

This type of fund might not be appropriate for investors who like to have a broad market exposure, or those who have low tolerance for portfolio volatility.

How to Invest in an Equity Other Fund

HDFC Sky helps investors to easily invest in Equity Other funds through their online platform. 

• Step 1– Open an account with HDFC Sky
  You can either download the HDFC Sky app or access our online platform. In online account registration, submit your personal information together with your PAN card and ID proof. You can open an account for free, and you can complete your KYC process through the online system, which will let you start using your account. 
• Step 2– Log in and navigate to Mutual Funds 
• Log into your account using your credentials after account activation. You need to go to the main dashboard and find the Mutual Funds section, which provides all investment options that you can choose from.
• Step 3– Select your Equity Other Fund
  Use either the browsing function or the searching function to find the specific Equity Other Fund you want to invest in. HDFC Sky gives users access to more than 2000 mutual fund schemes which belong to 29 different fund houses. The platform lets you view scheme information, fund comparison, and historical performance data before you make your final decision.
• Step 4– Decide between Lumpsum or SIP
  Select your desired investment method.
  • Lumpsum- You make a single investment in the fund.
  • SIP or Systematic Investment Plan- You can invest a fixed amount on a regular basis.
    Enter the amount to invest.
• Step 5– Place order
  Verify all the information, like the name of the fund, the amount of money invested, and their investment preference as either growth or IDCW. Check all details and proceed with the transfer of money. Payment can be made via netbanking, UPI and debit/credit card transfer. On confirmation, the units will be allocated to your account as per the NAV (Net Asset Value) applicable.

Factors to Consider While Investing in Equity Other Fund

1. Investment Horizon
   A long-term horizon will enable the fund’s strategy to ride out the market cycles.
2. Risk Profile
   Flexible allocations may increase volatility. Investors should assess alignment with risk tolerance.
3. Expense Ratio
   Compare the fund’s Total Expense Ratio (TER) with peers and other strategy-aligned funds.
4. Strategy Transparency
   Investors should understand the stock selection methodology, the rebalancing approach, and the benchmark relevance or deviation.
5. Portfolio Fit
   Consider how the fund can be used as a supplement to core equity holdings within overall portfolio diversification.

Taxation of Equity Other Funds

Equity Other Funds are classified as equity-oriented mutual funds, provided they maintain a minimum of 65% investment in equity and equity-related instruments.

Capital Gains Taxation

• Up to 12 months: STCG taxed at 20% (plus surcharge and cess)
• More than 12 months: LTCG taxed as:
• Up to ₹1.25 lakh exempt
• Exceeding ₹1.25 lakh taxed at 12.5% (without indexation)

IDCW (Dividend) Taxation

• IDCW income is taxable per the investor’s applicable income tax slab.
• TDS Rate: 10% if annual payout exceeds ₹10,000.

The tax laws can change, and investors must look at the existing tax laws and scheme disclosures to treat them accurately.

Conclusion 

Equity Other Funds provide investors with a flexible, strategy-oriented equity exposure beyond conventional categories. While this approach provides differentiated investment strategies, it carries strategy-specific risk and can be volatile.

This category is suitable for experienced, long-term investors who understand strategy execution, can tolerate benchmark deviation, and wish to diversify equity exposure. The decisions to be made in the allocation should align with the portfolio strategy, the risk profile, and the financial goals.