A mutual fund is one of the best investment options available for those who are looking to grow their money and secure their future with lucrative monetary benefits. This is a unique investment product started and managed by a Mutual Fund Company that pools money from many investors and invests in different asset classes like stocks, bonds, money market instruments, gold, and other securities. Investing in mutual funds can be profitable for you if you choose the right fund for the long term.
Types of Mutual Funds
Thinking of investing in mutual funds? If yes, you must learn about the types of mutual funds beforehand. Here is the list of various mutual fund types which you should know about.
Types of Mutual Funds Based on Asset Class
- Equity funds (stock funds): Primarily invest in stocks.
- Debt funds: Invest in fixed income-income securities (bonds).
- Money market funds: Invest in the money market aka capital market or cash market.
- Balanced (Hybrid) funds: Invest in a mix of stocks and bonds.
Types of Mutual Funds Based on Investment Goals
- Growth funds: Allocate a significant portion in shares and growth sectors.
- Fixed-income funds: Primarily invest in bonds
- Liquid funds: Invest in debt instruments and money market.
- Tax saving funds: Invest primarily in equity and related products.
- Aggressive growth funds: Primarily invest in the shares of growth company stocks.
- Capital protection funds: Invest carefully in fixed-income options and equity.
- Fixed maturity funds: Invest in debt securities of renowned listed companies.
- Pension funds: Aim to provide regular income after an investor retires.
How a Mutual Fund Works?
A mutual fund is a pooled investment managed by professionals. Here’s how it works:
- Investors contribute capital to the fund.
- The fund manager selects a mix of assets (like stocks, bonds, or money market instruments) based on the fund’s goals.
- Investors own shares in the fund, which represent part-ownership of these assets.
- The fund’s performance depends on how its assets fare in the market.
- Fees (such as annual fees and expense ratios) impact overall returns.
- Mutual funds offer diversification and are popular for retirement savings.
Benefits of Mutual Fund Investments
- Diversification: Spreads investments across various assets, minimizing risk.
- Professional management: Experienced fund managers make investment decisions.
- Convenience: Easy to buy and sell shares.
- Economies of scale: Allows individual investors to invest in a diversified portfolio with a smaller amount of money.
- Liquidity: Typically offers quick access to your money.
Mutual Fund FAQs
What is the regulatory body for mutual funds in India?
SEBI (Securities and Exchange Board of India) is a statutory body that regulates mutual funds and India’s capital market.
What is the expense ratio of a mutual fund?
The sum of expenses involved in a mutual fund scheme is termed the expense ratio. In simple terms, it is the fee levied by mutual fund companies to manage the mutual fund. Usually, it stays between 1.5% to 2.5% of the MF scheme’s net assets in a week.
What is a mutual fund portfolio?
A mutual fund portfolio is a combined holding of various securities like stocks and bonds purchased with the pooled capital of investors.
How can I start investing in mutual funds?
You can start investing in mutual funds by opening an account with a financial institution or online investment platform. We at Grow Rupiz can assist you in selecting the right mutual fund(s) for you.
What is SIP in mutual fund investment?
SIP stands for a systematic investment plan. This is the best mutual fund investment strategy which allows you to invest a fixed amount of money at a fixed date of every month for certain years or as long as you want.
What is lumpsum in MF investment?
Lumpsum is a one-time investment in a mutual fund. You can go with lumpsum investment if you have a large amount of money and looking for good investment options.
