Equity funds predominantly invest in equity shares (stocks) of various companies. So, by investing in an equity fund, an investor is a part-owner of the company the fund has invested in.

• The stock an Equity Fund will invest in depends on two things. The first is the category of the fund. Equity Funds by regulation are categorized based on either their investment style or their investing universe, and they have to stick to rules defined for that particular category by SEBI. For example, Large Cap Funds have to invest at least 80% of their corpus in the top 100 companies in India by capitalization (these companies are called large-cap companies). Read more about What is large cap funds?. Similarly, Mid Cap Funds have to invest at least 65% of their total assets in India's mid-sized companies. Read more about What is Mid Cap Funds?
• So, once the fund category is defined, the investment universe of an Equity Fund is defined. The next step is for the Fund to decide which stocks to pick from this universe. This is where the role of the Fund Manager and his team comes into play. These are professionals with expertise in markets and finance. They research and analyze various technical and fundamental indicators such as the profitability of any company, its ability to survive challenging phases in the economy, the sector in which it operates, etc. And based on this research, they arrive at investment decisions such as which stocks to buy, at which price to buy and sell, how many of them to buy, etc.
• Also, after buying these stocks, the fund manager continuously tracks how the companies are performing, how the sectors in which they operate are performing, how the economy is performing, and various other crucial factors that can steer the prices of these stocks. If they feel some of the companies whose shares they had bought wouldn't perform as expected, they take them out of their portfolio. Similarly, if they see some companies showing a lot of promise, they invest in them at an early stage. Because these fund managers are continually tracking the financial markets and economy, they have the advantage to take such tactical calls and get the best out of equity markets and handle the volatility better.