A Mutual fund is a pool of money managed by a highly experienced team of financial experts, known as Asset Management company. They invest our money in the Stock market, bonds etc. Many banks also providing Mutual fund Investment facilities like ICICI Bank, HDFC Bank, SBI Bank, Axis Bank etc.
The objective of the fund and risk level are outlined in a document called a Prospectus. The prospectus provides detailed guidelines for the types of investment criteria the manager can buy.
Types of Mutual Funds
Dependent on the Objective of the Investment, mutual funds have Following types:
1. Equity Funds
The fund manager mainly invests in the Stock market. These funds give high returns but its also its have high risk. So if you are willing to take high return you should aware the volatility of the stock market. In Equity funds, Its have the following types: Income funds, index funds, Blue-chip funds, Growth funds, value funds, Cyclical funds, Sector funds.
2. Balanced Funds/ Hybrid Funds
These funds invest both in fixed income instruments and shares. Its main point to balance growth and profit and generate regular income. Its have a moderate risk, in comparison with Equity, it’s better. It’s ideal to invest for medium to long term.
3. Gilt funds
These funds invest mainly in central and state government securities. These funds receive fixed interest from investments and also Invested in government securities so there is no risk for return and default. This money goes towards government expenses and infrastructure buildings.
4. Exchange Traded Funds (ETFs)
Exchange Traded Funds (ETFs) track a commodity, an Index or a basket of assets trade like a share on stock exchanges. Most ETFs track stock indexes, There are also ETFs that invest in Bonds, Currencies, Commodity Market and other assets classes. ETFs, give you the flexibility to buy and sell units throughout the day, on the stock exchanges.
5. Debt Funds/ Fixed Income Funds
Debt fund is mostly preferred by individuals who are not willing to invest in High volatile equity markets. A debt fund provides a steady but low income as compared with equity. These funds invest in such securities that give fixed income on the investment. They invest in corporate bonds, government securities, debentures, commercial papers, and other money market instruments, short term plans (STPs), monthly income plans (MIPs), Fixed maturity plans (FMPs).
6. Index Funds
Index funds invest in the share of companies that make up and index, For example, The nifty and The Sensex. The value of the index funds varies in the proportions to the Benchmark indexes. You don’t require monitor stock aggressively.
7. Global Funds
These funds invest in the assets outside of India. They most usually invest in U.S. companies. A global funds Search to identify the best investments from global securities. They can be a focus on single asset class and multiple asset classes.
Global Funds have the following types: Global funds that invest directly, Indirect Global Funds, Region-Specific Global Funds, Region-Specific Global funds.
8. Sector Funds
Sector funds invest in a particular industry Example of the Sector funds: Technology Sector
, Pharma Sector, Banking sectors. The whole level of the amount invested in one particular sector, so it has also a high level of risk. Because there are no diversifications in the Stocks.
9. Diversified Funds
These funds provide you the benefit of diversification by investing in sectors wise money and market capitalization. Investment is diversified in many sectors so there are the moderate risk and return capacity of the fund also be average.
10. Tax Saving Funds
These funds are for who seek to tax
rebate and long term growth, These funds offer tax benefits to investors under the income tax Act,1961.
11. Liquid Funds/ Money market funds
Investors who are want to return in the short term, they can invest in Liquid Funds
. Because these funds invest in high liquidity money market instrument. The period of investment in these funds is short as a day. These funds invest in securities with a residual maturity of up to 91 days. The liquid funds do not have not a lock-in period because they are not tied-up for invest Long term. They invest in commercial papers, treasury bills, certificate of deposits etc. The main focus of this fund is to protect the capital rather than ensuring high returns.
12. Ultra short term fund