Mar 15, 2017 4 min read

Explaining Mutual Fund Investments and Their Types

This blog will provide you with the complete understanding of the concepts of mutual fund investment plans.

Mutual funds are considered the amazing solution to make money work for accomplishing your financial goals. There are many confusions in the minds of investors due to which they have a fear of losing money by investing in them. After considering various calls from our clients and analysing the lack of knowledge among the investors regarding mutual funds, we have simplified the entire concept of mutual fund here. You must get an insight of the same to enhance your investment knowledge.

The Concept of “Mutual Funds.”

The entire cycle of mutual fund investing runs on the basic concept that is pooling of resources with a common objective in mind. A mutual fund is defined as a programme which is made up of money pooled together by various investors having a common objective in mind. This amount being pooled is passed on to some professional experts called “Fund Managers”, who invest them in stocks, shares, bonds, and other money market instruments. Thus, it is also defined as a basket of various investment avenues, such as stocks, bonds, and cash. Every mutual fund has certain investment objective and investment strategy which is clearly defined by the fund house known as Asset Management Company(AMC).

So in simple words, you can understand mutual fund as a company which brings together a large number of people or investors with common objectives, pools their money together, and invests the same in different investment opportunities as per the market conditions. The funds are managed by expert professionals who try to grab every better option to provide highest possible returns.

Major Features to Be Highlighted

The major features of Mutual Fund investment plan can be understood by considering the following characteristics:

  1. Professionalism and expert management of the invested capital.
  2. Minimised risk due to diversification.
  3. Liquidity of redeeming the funds anytime without any extra cost.
  4. Least cost on transactions.
  5. Variegated schemes to make a choice as per the requirements.
  6. Completely transparent and safe investing environment as per the guidelines of AMFI & SEBI.
  7. The flexibility of investing funds as per the convenience.

Types of Mutual Funds to Fulfil Every Goal

The basic rule of investing in the mutual fund is “Remember goals before numbers,” which means that while selecting a mutual fund plan for your investment portfolio, you must consider your goal of investing rather than looking at the returns offered by the schemes. A scheme with high-yielding capacity can be detrimental for your portfolio if you do not select the same as per your investment objective. Mutual funds have classified the plans in accordance with varying investment requirement.

Equity Funds- For those desiring capital growth over long term

Being an equity investor is just like being an owner of the company. Thus, the returns on such investments are unlimited while the risk associated with the same is higher as well. The investors who can bear high-risk appetite and want to gain capital appreciation must make investments in the equity mutual funds.

Debt Funds- For those who want regular and stable income

Debt mutual funds are low-risk funds which aim to generate steady returns on your investments while preserving the capital. With this, the portfolio attains income stability. The risk appetite is not as high as in the case of equity funds, but the market volatility is always there. Still, with the surety of yielding regular income, it is a suitable plan for the short-term investors.

Liquid Funds- For the investors seeking savings with high returns

This is a category which though falls under the debt mutual funds; it is administered and considered as a separate type of mutual fund. It is a fund having investments in the instruments which are least affected by the market moves as are made for very short-term tenure, i.e., up to 90 days. The features it possesses are similar to savings bank account, but its high-yielding returns make it a better savings option.

Hybrid Funds- For the ones who want capital growth with recurrent profits

As the name suggests, hybrid or balanced mutual funds are the ones whose portfolio consists a mix of equity, debt and money market securities. They are further bifurcated into equity-oriented and debt-oriented hybrid funds as per the requirement of the investors. This is considered to be a safe investing avenue with minimised risk and ensure better returns with the benefits of both equity and debts.

So now we believe that the investors have got a thorough understanding of the concepts of mutual funds and its types. We have provided the best recommendations on our website which are based on in-depth market research by our expert analysts. If you need any further assistance to make a better investing experience in mutual funds, then you must hire our CFA. MySIPonline and its entire team is ready to cater to the varied needs of investors across the country.