Mutual Funds-Types and Features

Last Updated : June 30, 2016, 10:35 a.m.

What is Mutual Fund?

When it comes to mutual fund, it is one such investment instrument in which many investors pool in their finances on trust basis. Yes, this trust is then managed by an highly experienced team of financial experts, known as Assest Management Company, who further invest this accumulated capital in numerous financial assets such as stocks, bonds, equities and many more.

Moreover, the people who invest in mutual funds usually have one common investment goal, and it would not be wrong to say that the earned dividends from such type of investment is proportionately distributed to the invested capital. Few banks that offer mutual funds are-  ICICI, SBI,Federal Bank,HDFC Bank,Induslnd Bank etc. However, when it comes to eligibility and documentation, different banks have different set of norms, so you need to check with the bank itself, before you invest in mutual funds.

Now, let’s try to understand that why one should invest in mutual funds, and what significance it has .

Why You Should Invest in Mutual Funds?

People prefer to invest in mutual funds for not only one, but for many reasons. Yes, because investing in mutual funds is undoubtedly a sensible decision for the below reasons-

• Investing in mutual funds is nothing less than a professional management of your investments.
• With having the large pool of resources, the investors usually do not fulfill the minimum investment need that they possibly would in individual stocks.
• With the help of a professional fund manager along with a diversified portfolio in asset investment the risk can be periodically tracked for the financial growth, which ultimately minimizes the chances of loss.

Types of Mutual Funds

Well, depending on the objective of investments, mutual funds have following types:

Equity Funds

• In equity funds, the funds are mainly invested in stocks.
• Returns are higher in it, but so are the risks involved.
• Equity funds can be rewarding because the long-term capital gains are exempted from tax.

Debt Funds

• In debt funds, the funds are mainly invested in government or corporate securities & bonds.
• Here investments can be short- term or long term, and you will get the fixed returns with lower risk.
• To save on tax in long-term investments, you can avail the indexation benefits.

Balanced Funds

Balanced funds generate high income from equity as well as steady returns, which ultimately helps in balancing the risk factor from equity.

Index Funds

• Index funds are designed to replicate the portfolio of the market index.
• You don’t need to aggressively monitor them.
• The risk involved is proportionate to the index fluctuations.

Gilt Funds

• Investment is completely in government securities, where there is no risk involved by default.
• The value of gilt funds units is dictated by the market volatility.
• Here, the risk- return ratio is as same as in equity funds.

Global Funds

• In global funds, the funds are invested in the assets outside of India.
• It adds an additional layer in the domestic diversification
• It is for those investors, who know the international market very well, understand the risks involved.

Fund of Funds

• Here the funds are invested in mutual funds directly, instead of assets.
• Your investment is diversified in the mutual funds instead of market instruments.
• The returns will be an average of all the funds.

Features & Benefits of Mutual Funds

• Beat Inflation
• Expert Managers
• Convenience
• Low Cost
• Diversification
• Liquidity
• Higher Return Potential
• Safety &Transparency