Mutual fund types: Decide a suitable one for yourself
Recent years have seen a significant increase in the popularity of mutual funds as a viable investment option. Depending on your investment objectives, goals, and risk tolerance, you can choose from a variety of mutual fund kinds in India. Many different mutual fund options are available from asset management companies in the nation. With the help of mutual funds, you can seek exposure to various asset classes in accordance with your financial objectives, level of risk tolerance, and investment horizon. Anyone can invest in mutual funds to build money, whether they are a seasoned investor or a novice. But it's crucial to comprehend the various forms of mutual funds one could invest in in order to choose the best one.
Different mutual fund types
Mutual funds are a sizable asset class in and of themselves. Different mutual fund types are created to satisfy changing investor needs. Let's look at the main characteristics used to categorise mutual funds.
- According to the structure
- According to the asset class
- According to speciality
- Depending on the investment objective
Funds based on the structure
- Open-ended funds:- These funds have units available for purchase or redemption at any time of the year. In essence, these funds will enable investors to keep making investments indefinitely. There are no restrictions on how much money can be put into the fund. They also frequently use an active management strategy, which means that a fund manager chooses the places where investments will be made. They are the ideal investment for those who want both investment and liquidity because any certain maturity dates do not bind them. Consequently, investors have the liquidity they require because they may withdraw their money whenever they choose.
- Closed-Ended Funds: These are investment vehicles where shares can only be bought during the first offer period. Units may be redeemed at predetermined maturity date. To provide liquidity, these plans are usually listed for trading on a stock exchange. In contrast, to open-ended mutual funds, the units or stocks must be sold through the stock market at the current share price to be sold after purchase.
- Interval Funds: Interval funds, which are available for share repurchases at specific intervals during the fund's tenure, have elements of both open-ended and close-ended funds. The fund management company periodically offers to repurchase units from existing unitholders. Unitholders may sell shares in favour of the fund if they so choose.
Funds based on asset class
- Equity funds:- Equity funds are those that put money into company shares or equity. These funds are regarded as high-risk but frequently offer substantial returns. Speciality funds for equity investments can be found in the banking, fast-moving consumer goods, and infrastructure sectors. They are associated with the markets and frequently.
- Debt funds:- Debt funds are those that invest in fixed-income securities such as corporate debentures, government bonds, and other debt instruments. They offer fixed returns and are regarded as secure investments. These funds do not cut taxes from investors' earnings at the source. Thus if those earnings are more than Rs. 10,000, the investor must pay the tax bill.
- Money Market Funds:- Money market funds invest in securities like T-Bills and Commercial Paper. They are known to be secure investments for people seeking quick but modest returns. Money markets are also known as cash markets, and they carry credit, reinvestment, and interest risk concerns.
- Balanced or Hybrid Funds:- Hybrid or balanced funds invest in a variety of asset classes. The ratio of equity to debt varies depending on the circumstance and vice versa. As a result, risk and return are balanced.
Watch here Types of Mutual Fund.
