Different Types of Mutual Funds

Mutual Funds are popular investments because of their simplicity, flexibility and diversification effect. However, when investing in mutual funds, investors often do not understand which category is the best choice for them. The best part of mutual funds is that they provide investment opportunities for all kinds of investors.There are currently over 44 registered mutual funds in India, offering a variety of arrangements to meet the dynamic needs of different investors. Don't worry. Any doubts related to the types of mutual funds are addressed in this blog.

Based on Risk

Very Low-Risk Funds

In the event of a rupture of the rupee or an unexpected national catastrophe, investors are uncertain about investing in riskier investments. In such cases, fund managers recommend investing in one or a combination of liquid, ultra short-term or arbitrage funds. The return may be 6-8%, but investors are free to change when the rate is very stable.

Medium-risk Funds

Here, the risk factor is moderate as the fund manager invests part of the debt and the other in equity. NAV is not a dynamic object, and the standard recovery can be 9-12%.

High Risk Funds

Ideal for investors who do not hate risk and who aim to earn large returns in the form of interest and dividends, high-risk mutual funds require effective fund management. Regular performance reviews are mandatory as they are at risk of market volatility. You can expect a 15% return, although most high-risk investments usually offer a return of up to 20%.

Specialised Mutual Funds

Sector Funds

Sector funds only invest in one specific category, mutual funds based on the theme. Since these investments are only invested in certain sectors with only a few shares, the risk factor is on the high side. Investors are advised to follow various industry-related styles. Sector Funds also bring good profits. Other banking, IT and pharma areas have seen significant growth and consistency in the past and are predicted to be promising in the future.

Index Funds

Best suited for idle investors, Index Funds puts money in the index. The wallet manager does not handle it. The index fund identifies the shares and their corresponding interest rate in the market index and puts the same amount of interest in the same stock. Even if they can't get past the market (which is why they are not popular in India), they play it safe by imitating the performance of the index.

Funds of Funds

The diversified mutual fund investment portfolio offers a number of benefits, and ‘Funds’ also known as multi-manager mutual funds are created to exploit this to a minimum - by investing their money in various fund categories. In short, buying a single investment fund instead of several investments achieves diversity while keeping costs low at the same time.

Emerging market Funds

Investing in emerging markets is considered a risky bet, and it has negative returns as well. India, by itself, is a dynamic and emerging market in which investors are gaining high profits in the domestic stock market. As with all markets, they are also subject to market fluctuations. And, from a long-term perspective, the emerging economy is expected to contribute to global global growth in the coming decades.

International / Foreign Funds

Popular with investors looking to diversify their investments abroad, foreign mutual funds can get investors a good return even when the Indian Stock Exchanges are doing well. An investor can use a mixed method (say, 60% of domestic and other foreign funds) or a supply method (getting local funds to keep in stock) or a theme-based share (e.g., gold mining).

Global Funds

Without the same dictionary definition, international currencies are very different from International Funds. Although the global fund invests in global markets, it also includes investment in your country. International Funds is focused on foreign markets only. Diverse and ubiquitous, global currencies can be very risky due to different policies, market volatility and currency type, although they serve as a break against inflation and long-term returns have been historically high.

Real Estate Funds

Despite the growth in real estate sales in India, many investors are still hesitant to invest in such projects because of its many risks. A real estate fund can be a great alternative as the investor becomes an indirect participant by investing in start-up companies / trusts instead of projects. Long-term investments eliminate risk and legal issues when it comes to buying property and providing financing to some degree.

Commodity-focused Stock Funds

These funds are suitable for investors who have a strong desire to take risks and who want to diversify their portfolio. Commodity-focused stocks offer the opportunity to enter into a wide and varied trade. Refunds, however, may not be occasional and are based on the performance of the stock company or the asset itself. Gold is the only asset that mutual funds can invest directly in India. Some purchase fund units or shares come from commodity businesses.

Market Neutral Funds

For investors looking for protection from negative market trends while earning good profits, market neutral funds meet a purpose (such as a hedge fund). In keeping with the risks, these investments offer high returns when small investors are able to cross the market without extending the portfolio limits.

Inverse / Leveraged Funds

While the standard reference wallet is aligned with the benchmark index, the reverse index funds return in the opposite direction. There is nothing but selling your shares when the stock goes down, only to buy them again at a much lower cost (hold until the price goes up again).

Asset Allocation Funds

Combining debt, equity and gold at fair value, this is a very flexible fund. Based on a predetermined or speculative formula of a fund manager based on current market trends, asset allocation funds can regulate equity debt distribution. It is almost identical to the combined funds but requires a great deal of prudence in selecting and allocating bonds and shares to the trustee.

Gift Funds

Yes, you can also donate a mutual fund or SIP to your loved ones to protect their financial future.

Exchange-traded Funds

It belongs to the index family and is bought and traded on the exchange. Exchange traded Funds have opened up a new world of investment prospects, enabling investors to have greater exposure to overseas stock markets and specialised sectors. An ETF is like a mutual fund that can be sold in real time at a price that can go up or down several times a day.

Based on Asset Class

Equity Funds

Equity funds invest primarily in stocks, and that is why they go by the name of stock currencies as well. They invest the combined money of various investors from different domains and become shares / stocks of different companies. Profits and losses associated with these investments depend solely on how the invested stocks operate (inflation or inflation) in the stock market. Also, equity investments have the potential to generate significant returns over a period of time. Therefore, the risks associated with these investments are often relatively high.

Debt Funds

Debt Funds mainly invest in fixed income securities such as bonds, securities and treasury loans. They invest in various fixed income instruments such as Fixed Maturity Plans (FMPs), Gilt Funds, Liquid Funds, Short-term Programs, Long-Term Bonds and Monthly Income Schemes, among others. Since investments come with a fixed interest rate and a maturity date, it can be a good option for inactive investors looking for normal income (interest and capital value) with minimal risk.

Money Market Funds

Investors trade stocks in the stock market. In the same way, investors are investing in the stock market, also known as the stock market or the stock market. The government manages it in partnership with banks, financial institutions and other organisations by issuing financial market securities such as bonds, T-bills, security securities and deposit certificates, among others. The fund manager invests your money and issues regular shares as a return. Choosing a short-term plan (not more than 13 months) can reduce the risk of a major investment in those investments.

Hybrid Funds

As the name suggests, consolidated funds (Equity Funds) are a complete combination of bonds and stocks, thus closing the gap between equity funds and debt financing. The rating can be changed or adjusted. In short, it takes the best of two shared funds for distribution, i.e., 60% of assets in stocks and the rest in bonds or vice versa. Combined funds are suitable for investors who want to take greater risks in order to reap the benefits of ‘debt and repayment’ rather than sticking to low but stable income plans.

Based on Investment Goals

Growth Funds

Growth funds often play a large part in the stock and growth sectors, which are suitable for investors (especially Millennials) who have large, idle funds that will be distributed to more risky systems (although there are more potential returns) or who are confident in the system.

Income Funds

The proceeds belong to a family of credit mutual funds that distribute their money through a combination of bonds, deposit certificates and securities among others. With the help of competent fund managers who keep the portfolio consistent with rate fluctuations without compromising on the creditworthiness of the portfolio, historical revenues have benefited investors better than the deposit. They are ideal for risk-free investors with a 2-3 year vision.

Liquid Funds

Like income, liquid investments are also part of the debt fund as they invest in debt instruments and financial markets for up to 91 days. The maximum amount allowed to invest is Rs 10 lakh. A distinctive feature that separates liquid investments from other credit cards is the way the Net Asset Value is calculated. The NAV for liquid currency is calculated 365 days (including Sundays) and in some cases, only business days are considered.

Tax Savings Funds

The ELSS or Equity Linked Saving Scheme, over the years, has risen sharply among all categories of investors. Not only do they offer the benefit of growing wealth while allowing you to save on taxes, but they also come with a minimum lock of only three years. They invest heavily in equity (and in related products), known for making tax-free returns at14-16%. These funds are best suited to leading investors with a long-term investment vision.

Aggressive Growth Funds

Slightly on the more risky side when choosing where to invest, the Aggressive Growth Fund is designed to make high interest rates. Although at risk of market volatility, a person can decide on a wallet in terms of beta (a tool to measure fund mobility against the market). For example, if the market shows 1 beta, a strong growth fund will show a higher beta, say, 1.10 or higher.

Capital Protection Funds

If protecting the principal is a priority, Capital Protection Funds achieves the goal while earning a relatively small return (12% best). The Fund Administrator invests part of the money in bonds or Deposit Certificates and the other investment in stocks. Although the chances of getting any losses are very low, it is recommended that you stay invested for at least three years (closed) to protect your money, and the refund is taxed.

Fixed Maturity Funds

Many investors choose to invest in FY in order to use a triple indexation, thus reducing the tax burden. If you are not comfortable with debt market trends and related risks, Solid Growth Plans (FMP) - investing in bonds, securities, money market etc. - they present a good opportunity. As a closed system, FMP operates at a maturity period, which can range from one month to five years (such as FDs). The fund manager ensures that the money is allocated to the investment at the same time, in order to earn the accrued interest during the FMP maturation.

Pension Funds

Putting part of your income into a designated pension fund for long-term savings to protect your financial future for your family after retirement from normal employment may result in many emergencies (such as a medical emergency or child marriage). Relying solely on savings to pass your golden years is not recommended as savings (no matter how great) are used. The EPF is a model, but there are many lucrative programs offered by banks, insurance companies, etc.

Based on Structure

Shared funds are also classified based on various factors (such as risk profile, asset class, etc.). The division of property - open funds, closed funds, and temporary funds - is very wide, and the difference depends largely on the flexibility of buying and selling mutual fund units.

Open-Ended Funds

Open funds do not have certain constraints such as period or number of units that can be traded. These funds allow investors to trade for finance at an agreed time and exit where required by the existing NAV (Commodity Price). This is one reason why unit costs are constantly changing with new and outgoing installations. An open fund can also decide to stop taking new investors if they don't want to (or can't manage important investments).

Closed-Ended Funds

In closed currencies, the investment unit is defined in advance. This means that the fund company cannot sell more than the previously agreed number of units. Some funds also come with the New Fund (NFO) era; where there is a deadline to purchase units. NFOs come with a predefined maturity period with fund managers open to any fund size. Therefore, SEBI has authorised that investors be given the option to repurchase options or invest in a stock exchange in order to exit the plans.

Interval Funds

Interval Funds have features for both open and closed funds. These funds are open to purchase or use only from time to time (determined by the fund organisation) and closed at all times. Also, no transaction will be allowed for at least two years. These funds are suitable for investors who want to save a lump sum monetary policy, say, within 3-12 months.

Avoiding frauds

By law, each mutual fund is required to complete a prospectus and regular shareholder reports with the SEC. Before you invest, be sure to read the prospectus and required reports of shareholders. In addition, investment portfolios of mutual funds are held by various organisations known as “investment advisors” who are registered with the SEC. Always check if the investment adviser is registered before the investment.

So Happy Investing Everyone! :)