What is a Mutual Fund? The term Mutual Funds refers to a pool of money accumulated by several investors who aim at saving and making money through their investment. The corpus of money so created is invested in various asset classes, viz. debt funds, liquid assets and the like. Just like gains and rewards earned over the period of investment, losses are also shared by all the investors in equal proportion, i.e. in accordance with their proportion of contribution to the corpus. Mutual Funds are registered with SEBI (Securities and Exchange Board of India) that regulates security markets prior to the collection of the funds from the investors. Investing in a Mutual Funds can be as simple buying or selling stocks or bonds online. Moreover, investors can sell out their shares whenever they want or need. Types of Mutual Funds in India There is a wide range of mutual funds in India, which is categorized on the basis of investment objective, asset class, and structure. Types of Mutual Funds Based on Asset Class Equity Funds These funds are invested in equity stock or shares of the companies. They provide a higher result, that’s the reason they are considered as high-risk funds. Debt Funds These funds are invested in the debt like government bonds, company debentures, and fixed income assets. As they provide fixed returns, they are known to be a safe investment instrument. Money Market Funds These funds are invested in liquid instruments, such as CPs, T-Bills etc. They are considered quite safe investment option, as you get an immediate yet moderate return on your investment. They are a perfect option for investors who want to invest their abundant funds. Hybrid or Balanced Funds These types of funds are invested in different asset classes. There are times when the proportion of debt is lower than equity; it could be another way around as well. In this manner, return(s) and risk(s) strikes a perfect balance. Sector Funds In these funds, investment is made in a particular sector or division of the market. For instance, infrastructure fund investors make investments restricted to infrastructure companies or investment instruments offered by the infrastructure companies. Returns on an investment are directly proportionate to the performance of that particular sector. The risk factor associated with these schemes varies sector to sector. Index Funds These funds are investment instruments that represent specific index on the exchange in order to monitor the returns and the movement of the index, viz. purchasing shares from the BSE Sensex. Tax-Saving Funds These funds make investment majorly in the equity shares. Tax-saving funds make an investor eligible to claim tax deductions under the Income Tax Act. Risk factor involved in these funds is generally on the higher side. At the same time, higher returns are offered if the funds’ performance is at par. Funds of Funds These funds invest in the other mutual funds and the returns are dependent on the overall performance of the target funds. Types of Mutual Funds Based on Structure Open-Ended Funds These mutual fund investment instruments deal with units that are purchased or redeemed throughout the year. Such purchases or redemptions are done at persisting Net Asset Value (NAV). These funds offer liquidity to the investors, so they are preferred by the investors. What is a Mutual Fund? (/images/Life-Insurance/mutual-funds.jpg) The term Mutual Funds refers to a pool of money accumulated by several investors who aim at saving and making money through their investment. The corpus of money so created is invested in various asset classes, viz. debt funds, liquid assets and the like. Just like gains and rewards earned over the period of investment, losses are also shared by all the investors in equal proportion, i.e. in accordance with their proportion of contribution to the corpus. Mutual Funds are registered with SEBI (Securities and Exchange Board of India) that regulates security markets prior to the collection of the funds from the investors. Investing in a Mutual Funds can be as simple buying or selling stocks or bonds online. Moreover, investors can sell out their shares whenever they want or need. Types of Mutual Funds in India There is a wide range of mutual funds in India, which is categorized on the basis of investment objective, asset class, and structure. Types of Mutual Funds Based on Asset Class Equity Funds These funds are invested in equity stock or shares of the companies. They provide a higher result, that’s the reason they are considered as high-risk funds. Debt Funds These funds are invested in the debt like government bonds, company debentures, and fixed income assets. As they provide fixed returns, they are known to be a safe investment instrument. Money Market Funds These funds are invested in liquid instruments, such as CPs, T-Bills etc. They are considered quite safe investment option, as you get an immediate yet moderate return on your investment. They are a perfect option for investors who want to invest their abundant funds. Hybrid or Balanced Funds These types of funds are invested in different asset classes. There are times when the proportion of debt is lower than equity; it could be another way around as well. In this manner, return(s) and risk(s) strikes a perfect balance. Sector Funds In these funds, investment is made in a particular sector or division of the market. For instance, infrastructure fund investors make investments restricted to infrastructure companies or investment instruments offered by the infrastructure companies. Returns on an investment are directly proportionate to the performance of that particular sector. The risk factor associated with these schemes varies sector to sector. Index Funds These funds are investment instruments that represent specific index on the exchange in order to monitor the returns and the movement of the index, viz. purchasing shares from the BSE Sensex. Tax-Saving Funds These funds make investment majorly in the equity shares. Tax-saving funds make an investor eligible to claim tax deductions under the Income Tax Act. Risk factor involved in these funds is generally on the higher side. At the same time, higher returns are offered if the funds’ performance is at par. Funds of Funds These funds invest in the other mutual funds and the returns are dependent on the overall performance of the target funds. Types of Mutual Funds Based on Structure Open-Ended Funds These mutual fund investment instruments deal with units that are purchased or redeemed throughout the year. Such purchases or redemptions are done at persisting Net Asset Value (NAV). These funds offer liquidity to the investors, so they are preferred by the investors. Close-Ended Funds These mutual funds investment instruments deal with units that can be purchased during initial period only. The units are eligible for the redemption on a specific maturity date. In order to provide liquidity, these schemes are listed on the stock exchange for trading purposes. Types of Mutual Funds Based on Investment Objective Growth Funds These schemes let investors invest their money majorly in equity stocks. The objective behind this is that it provides capital appreciation. Though these funds are considered to be risky, they are considered ideal for investors having an investment timeline that’s long-term. Income Funds These schemes let you invest your money majorly in fixed-income instruments, such as debentures, bonds etc. They serve the purpose of providing regular income and capital protection to the investors. Liquid Funds The money invested in liquid funds is invested majorly in short-term and at times, very short-term investment instruments like CPs, T-Bills etc. with the sole purpose of providing liquidity. These schemes are low on the risk factor and they provide moderate returns on investment. These schemes are ideal for investors having short-term investment timelines. Mutual Fund Investment Goals There are various kinds of a mutual fund with a specific goal set. Mutual fund investment objectives are the goals set by the fund manager for the mutual fund investment while making a crucial decision - which bonds and funds should be included in the funds’ portfolio. For instance, Mr. Gupta plans to invest in the equity market to accomplish his investment objective, i.e. to get long-term capital appreciation while meeting his long-term financial targets like child’s overseas education and his own retirement. Depending majorly on the objective of the investment, mutual funds are classified in 5 categories. The following are these categories: 1. Aggressive Growth Funds Aggressive growth fundshave the higher chances of sudden growth and their value rises up at a fast speed.Investors invest in aggressive growth funds with the objective of fetching higher returns. Since the funds witness a sudden growth, the risk factor involved is extremely high. It is because funds with sudden price appreciation potential end up losing their value at a high speed at the time of downfall in the economy. Investing in these funds is an ideal option for the investors who are willing to invest their money for a time period of five years and their investment objective revolves around a long-term perspective. The investors who can’t afford to have the potential to lose the value of their investment and whose investment objective is to conserve capital are recommended to not to buy aggressive growth funds. 2. Growth Funds In aggressive growth investment, the growth fetches higher returns on investment. The investment portfolio will comprise a blend of small, medium and large sized corporations. The fund portfolio would include that in order to make an investment in a well- established and stable corporation. In addition to that, the fund manager would invest a small proportion of funds in a freshly set up small scale company. The fund manager would select growth stock, which will make use of the growth to make profits instead of paying the dividends. Holding onto growth funds most of the times proves to be profitable for the investor(s). 3. Balanced Funds It is the fusion of the income and growth funds, which is known as balanced funds. These funds have a mixture of goals to accomplish. The goal is to aim at providing the investors with the present income and at the same time, it offers the possibility of growth. These funds aim to accomplish various objectives that investors look forward to. Balanced funds’ stability ranges from low to moderate but its potential for growth and current income is moderate. 4. Income Funds The funds that normally make an investment in a range of fixed income securities are known as income funds. These funds ensure regular income for the investor(s). These funds are ideal for the investors who are retired, as they will have a regular supply of dividends. The fund manager will invest in company fixed deposits; debentures etc. and that will provide a regular income to the investors. It is a stable investment option yet it has moderate risk factor involved. With the fluctuations in the rate of interest, the prices of income share funds, bonds will be affected accordingly. Also, the rate of inflation takes a toll on the income funds. 5. Money Market Mutual Funds These funds strive on the maintenance of capital prevention. That’s the reason why the investors investing in these funds should be extremely cautious. Though money market mutual funds have the potential of yielding a higher rate of interest as compared to the bank deposits’ rate of interest, profits are not there. Also, the risk factor involved is very low. Due to higher liquidity, the investors are able to alter and mold their investment strategy. How to Invest in Mutual Funds If you invest only and only in one mutual fund investment instrument, by default the risk factor becomes higher. If you invest your capital in different mutual fund investment instruments, then you end up stabilizing the risk involved. If one fund is not yielding great returns, you will be protected by the other investment instruments. Start With Your Financial Needs Investment needs vary person to person, as the investment objectives vary person to person. Factors like financial goals, risk threshold, time period and capital affect the investment decisions. Even before you select your mutual fund investment instrument, analyze your fiscal goals and decide your time frame and risk threshold accordingly. On the basis of that, zero down the investment options that are in sync with them. Mutual Funds Benefits.