Mutual funds provide the most comprehensive, flexible and straightforward ways to create a diversified investment portfolio. There are different types of mutual fundss offering various options for investors with varying types of risk appetite. To help you make an informed investment decision, let us know that different types of mutual funds are currently available in the market.
Any mutual fund will invest in equity, debt, or a combination of both. They can also be open-ended or close-ended schemes of mutual funds.
An investor can invest or enter and redeem or exit at any time in an open-ended mutual fund. It does not have a set period of maturity.
There is fixed maturity date for close-ended mutual funds. The investor may invest or enter such schemes during the initial period known as New Fund Offer or NFO period. On the maturity date, his investment will be redeemed manually. They are recorded on the Stock Exchange(s).
Let us look at the various types of mutual funds applicable in India for equity and debt:
These are one of the most common schemes for mutual funds. They enable investors to join the stock markets. These plans, although classified as a high threat, also have significant long-term potential. In their prime earnings phase, they are perfect for investors building a portfolio that will give them better long-term yields. Usually, an equity fund or a diversified equity fund, as it is often called a risk distribution investment across a spectrum of industries.
It is also possible to divide equity funds into three classifications:
- Sector-specific funds
- Index funds
- Tax saving funds
These funds invest in short-term debt instruments to provide investors with a good return in a short period of time. These funds are suitable for low-risk investors seeking to park their excess funds short-term. It is an option to keep cash in a bank account for savings.
Debt mutual funds
These funds invest most of the cash in debt-fixed income, i.e., set up coupon-bearing instruments such as government securities, bonds, debentures, etc., have a low-risk-to-return approach and are low-risk Looking for investors On continuous revenue generation. Indeed, they are subject to credit risk.
As the name indicates, these are mutual fund schemes, dividing their investments between equity and debt. Depending on market threats, changes in distribution may continue. It is better suited to investors seeking a combination of moderate yields and comparatively low risk.
Monthly Income Plans (MIP)
These funds are equal to balanced funds, but the percentage of equity funds is less than balanced funds. Therefore, they are also known as marginal equity funds. They are particularly suitable for retired investors who want relatively low-risk periodic revenue.
These funds only invest in government securities and are preferred to investors who are risk-averse and do not want any credit risk in relation to their investments. They are, however, exposed to a higher risk of interest rates.