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Monday, December 12, 2016

Different types of Mutual Funds


You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities.

Basic information on Mutual Funds

People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal.

Functioning of Mutual Funds

You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any time for profits. Then you could reinvest your profits.

Types of Mutual Funds

You may choose to invest in several Mutual Funds to spread out your investment. These could range from Equity-linked Funds to Debt Funds. There are different categories of Mutual Funds. These are based on asset class, risk profile, and investment purpose.

Equity/Index Funds: These Funds invest in shares or stocks of companies. Each company has a certain value on the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). The value of Funds invested in these companies is proportionate to the company's value on the specific stock index. For example, your fund could invest in the stocks of a company listed on the BSE index. Large-cap funds hold shares and stocks of well-established companies. Mid-cap Funds invest in smaller companies that may still be growing.

Sector funds: These Funds invest in equities in a particular sector of the economy. For example, you may invest in a Mutual Fund holding shares or stocks in an automobile or infrastructure company (like Birla SL). Here, the funds are concentrated in the same industry. So they could be very unstable. But suppose you add Mutual Funds from other assets (like debt or gold). You may be able to spread out both your investment and your risk.

Debt Funds: These Mutual Funds invest in fixed-income securities like treasury bills, government securities, and corporate bonds. Debt securities pay a fixed rate of interest. They also have a fixed maturity date. There are different options of investing in Debt Funds. These include monthly income plans, short-term plans, and fixed-maturity plans. You could also invest in short-term, medium-term, and long-term bonds through Debt Mutual Funds. Debt Mutual Funds could be more stable than Equity-linked Mutual Funds.

Hybrid Funds: These funds could allow you to invest a bit in both stocks and bonds (Equity and Debt). Equity Hybrid Funds invest more in Equity and less in Debt. For example, 65% could be in Equity and the rest in Debt. Debt Hybrid Funds invest more in debt and less in equity. For example, about 75% could be in debt and the rest in Equity. Debt Hybrid Funds may protect you when the market is rough due to their debt factor. They include monthly income plans and capital investment plans.

Mutual Funds could be open-ended or close-ended. Most Mutual Funds are open-ended. They let you convert your share into cash at any time. But some funds may not let you convert until the end of the scheme.








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