Mutual Funds; All to Know About

We all human beings are very conscious of our life. We save a lot of money for securing our future. In order to do so, we always search for the best choice of investments. Some people directly invest their savings into individual securities, cryptocurrencies etc (read about Crypto Code scam) and others invest their money through financial intermediaries such as mutual funds, stock exchange and so on.  The mutual fund is one of the types of financial intermediary that pools money from the public and invest in different types of financial claims such as equity shares, bonds, and other securities. The mutual fund schemes are managed by Asset Management Companies which in turn are set up as a trust and functions under the guidelines of SEBI. A mutual fund provides a net asset value to its investors which denote an equitable right in the assets of the mutual fund.

What are the Types of Mutual Fund Schemes?

Mutual funds are mainly divided into two types on the basis of its objectives and structure.

  1. On the basis of maturity
  2. On the basis of objectives of investments

 

  1. On the basis of Maturity

Maturity-based mutual funds are subdivided into two types open end and closed-end funds.

  • Open-end mutual fund: here the investor can sell or purchase the units at any point in time.
  • Close-end mutual fund: the investor can sell a fixed number of units in the new fund offer period.

 

  1. On the basis of objectives of investments

On the basis of objectives, the mutual funds are divided into mainly six types they are

  • Equity Funds

In equity funds normally the investors invest their major portion of the fund (corpus fund) in equities. These schemes have a lot of investing options which are provided to the investor like growth option, invest option etc. so that the investor can choose an appropriate option according to his preference.

  • Balanced Funds

Balanced funds generally invest a ratio of 40-60 in equity and other debt instruments (fixed income securities). This is one of the best options for the investor who looking for moderate growth because it provides both growth and regular income.

  • Debt Oriented Scheme

Here the investor can invest his funds in medium-long term debt instruments. It is a low-risk scheme and can generate a fixed current income.

 

 

  • Money Market Funds

Money market funds invest in short-term instruments such as commercial paper, call money, treasury bill etc. Return of investment is less fluctuating than other funds.

  • Gilt Funds

Gift funds are invested in medium to long-term in debt securities issued by the government. It is a very low-risk investment.

  • Index Fund

These funds are funds with a portfolio that matches components of an index such as Standard & Poor’s 500 indexes. It has the advantage of providing broad market exposure, low operating expenses and low portfolio turnover.

Key Features of Mutual Funds

Mutual funds are the best choice of investments because they have some features such as

  • Professional management

The professional managers in mutual fund conduct market studies and monitor performance of fund purchased. By this investor can achieve more return.

  • Low cost

The normal people can purchase mutual funds because they set a very low value for the initial purchase, subsequent monthly purchase.

  • Liquidity

Most of the mutual fund schemes can be easily redeemed at any time. The invested units provide the advantage of liquidity.

  • Diversification

Mutual funds invest in different types of financial claims.  All the stocks may not move in the same direction at the same time so this diversification reduces the risk of investment.

Author: Mia Schmidt

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