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Mutual Funds

What is a Mutual Fund?

  • A mutual fund is a pool of money managed by a professional money manager.
  • The objective and the risk level are outlined in a document called a prospectus. The prospectus provides detailed guidelines for the types of investments the manager can purchase.
  • A mutual fund is also known as an open-ended investment fund, which means the fund sells units (of this pool on money) upon request. 

 

What are the benefits of purchasing a mutual fund?

1        Professional Management: The fund company hires talented money managers who have many resources behind them (including a team of people dedicated to researching, tracking, determining trends, and doing thorough analysis), and who work full time on your behalf.

2        Diversification: Lowers the risk because, regardless of the size of your investment, each unit purchased is made up of many different investments.

3        Liquidity: Mutual funds can be sold anytime, and easily

Flexibility: Mutual funds allow you to purchase as much or as little as you want, and offer a variety of purchase plans

Types of mutual funds in India

We are trying to make it as simple as possible in explaining to you the different types of mutual funds.

  1. Equity Funds

          Equity funds invest most of the money that they gather from investors into equity shares. These are high risk schemes and investors can also make losses, since most of the money is parked into shares. These types of schemes are suitable for investors with an appetite for risk. Read more articles on Equity Funds.

  1.  Debt Funds

            Debt funds invest most of their money into debt schemes including corporate debt, debt issued by banks, gilts and government securities. These types of funds are suitable for investors who are not willing to take risks. Returns are almost assured in these types of schemes. Read more articles about Debt funds

  1.  Balanced funds

            Balanced funds invest their money in equity as well as debt. They generally tend to skew the money more into equity then debt. The objective in the end is again to earn superior returns. Of course, they might alter their investment pattern based on market conditions. Read More articles on Balanced funds.

  1.  Money Market Mutual Funds

            Money market mutual funds are also called Liquid funds. They invest a bulk of their money in safer short-term instruments like Certificates of Deposit, Treasury and Commercial Paper. Most of the investment is for a smaller duration.

  1.  Gilt Funds

         Gilt Funds are perhaps the most secure instruments that are around. They invest bulk of their money in government securities. Since they have backing of the government they are considered the safest mutual fund units around.