Mutual funds – Types and why you should invest in them

Mutual funds – Types and why you should invest in them

Mutual fund refers to the fund that is collected from various investors for the intention of buying securities, such as securities can be stocks, bonds, and other assets.

These are the various types of mutual funds:

1. Equity Funds: These are the funds that are invested in equity shares and stocks of companies.

• funds provide the best returns than other mutual funds but are considered to be high-risk.
• on market capitalization, equity funds are classified into four categories:

1. Large-cap: These are the funds invested in large-cap companies, which are firmly established and therefore increase the chances of getting stable returns.
2. Mid-cap: These funds are invested in companies that are medium-sized and compared to large-cap funds, they are less stable.
3. Small-cap: These funds are invested in shares of small-sized companies. These funds are risky and are subject to fluctuations in the market.
4. Multiple-cap: These are the funds that are invested depending on the condition of the market. They are invested in large-cap, mid-cap, and small-cap stocks and are less risky when compared to purely mid-cap or small-cap funds.

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5. Debt Funds: These are mutual fund schemes that are invested in instruments that generate a fixed income, such as government bonds, company debentures, money market instruments, etc. They are regarded as safe and low-risk, have high liquidity, and provide stable returns.

• of debt funds:

1. Long term: long term debt funds are those having a long maturity period, such as more than ten years, and they have the potential of generating more returns than other traditional debt instruments, such as fixed deposits.
2. Short term: These refer to the schemes which have a maturity period of one to three years, and they generate better returns than fixed deposits while reducing your risk.
3. Hybrid Funds: These funds are invested in various types of assets, such as a mix of stocks and bonds. Hybrid funds provide investors with a diversified portfolio.
4. Aggressive: These funds are schemes that aim to generate long term regular income. They invest in both equities, as well as debt securities. At least 20% of funds are invested in debt instruments and 40 to 60% in equity and equity-related instruments. A fund manager dealing in aggressive funds has the flexibility of taking advantage of opportunities, such as buying stocks at low prices and selling at high prices.
5. Balanced: Balanced hybrid funds invest in both debt and equity instruments intending to provide investors with the best returns from both segments. They ensure appreciation of capital and reduce risks.
6. Conservative hybrid: They are the funds with at least 75% amount invested in instruments similar to fixed deposits and some of the percentage on stocks. They are low-risk investments and generate more income than traditional fixed deposits.

Investing in mutual funds will provide numerous benefits to you, such as:

• Reduced risk on account of diversification
• They are affordable
• They are easy to understand
• They are professionally managed
• You get many tax benefits
• They are easy to buy
• You can choose the assets you want to invest in
• They are very flexible
• You can track your investments easily
• You get high returns
• You get SIP options