Wednesday, 12 September 2018

MUTUAL FUNDS, What is a mutual fund? Types of Mutual funds in India

What is a mutual fund?

A mutual fund is an investment programme that collects money from investors and invests that money on behalf of an individual investor in various asses like stocks, bonds, securities, and money market. Mutual funds are managed by a professional fund manager. The gain or losses of the funds shared in equal proportion according to investment amount. 

Mutual funds are regulated by SEBI ( Security and Exchange Board of India ), Mutual funds returns depend on the performance of assets it decides to buy. So when you invest in a mutual fund you are actually buying the performance of the portfolio of that fund.

Types of M
utual funds:

Mutual funds are divided into different categories representing the types of assets that fund manager invest on.
The main categories of mutual funds are classified based on the 

1. Assets Class

2. Structure and

3. Investment objective

Types of mutual funds based on Assets class

Equity Funds:  These funds invest in equity i.e stocks or share of companies. These are high-risk scheme, that's why they provide a higher return. An investor should invest in these funds for a longer period of time.

Debt Funds: These are funds that invest in fixed-income securities like bonds, Government securities, commercial papers, Treasury Bills etc. These funds are considered as safer investments options.

Hybrid Funds: Hybrid Funds are also known as balanced funds because these type of funds invest in a mix of equity and debt, these types of funds are suitable for an investor who is willing to take risk more than the risk of debt-funds and lower than the risk of equity fund. 

Types of Mutual Funds based on Structure

Open-Ended Funds: In this type of funds investor can invest or redeem whenever and as long as they want and there is no limit on how much they want to invest. These funds are actively managed by fund manager so, its charge is higher than passively managed funds.

Closed Ended Funds: These are the funds in which an investor can invest during its initial offer period, and once you buy these funds you cannot sell it till the specific maturity date.

Types of Mutual Funds based on Investment objective

Growth Funds: These funds are the same as Equity funds, In these funds money majorly invest in equity stocks. These funds are ideal for who are seeking a higher return and willing to take high risk. 
Income Funds:  In income funds, the fund manager parks the money on fixed income instruments like bonds, debentures etc. These funds provide capital protection and regular income to investors.

Liquid Funds: These are considered low risk and moderate return investment options. And these funds are suitable for the investor with short-term goals.

Note: In this article, we only discuss major types of Mutual funds there are lots of others types of funds like tax-saving funds, money-market funds, Index funds, fixed maturity fund and many more. 

And always remember 

Mutual Funds are subject to market risk.

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