Mutual funds are considered to be best investment in India. Because you can start with just 500 rupees monthly and it is easy to start mutual funds. Before we start investing on mutual funds. Let us understand the different type of mutual funds. Each fund group has individual objectives. It categorized as different groups for better planning for your investment objectives. 9 Major types of mutual funds in indian mutual fund market.
Liquid funds:
Liquid funds primarily invest the money in very short-term instruments such as treasury bills and corporate bonds. It is giving money to corporate and other financial institute for fixed maturity period. Liquid funds are considered to be moderate returns and are ideal for investors with short-term investment timelines.
Debt Funds:
Debt funds invest in debt instruments like corporate bonds, government securities, debentures. Debt funds are relatively safer and therefore the returns on them are modest when compared to equity funds. In these, if debt funds invested only securities are named as Gilt funds. Gilt Funds invest in government securities of medium and long term maturities issued by central and state governments. There are corporate Bond funds that invest predominantly in corporate bonds and debentures of varying maturities that offer relatively higher interest, and are exposed to higher volatility.
In simple terms, debt funds(very short, short, long) money gives as loan to financial institute and it collected with predefined interest from financial firms. Dept funds are loan given to companies from pooled money, ie money collected from you and other investors. Companies would pay the money back as mentioned in the bonds/agreement. It is all predefined interest and agreement. Companies would not share the profit or loss to the investor as it is given as loan. They have to return without considering the financial return of the company.
Debt funds gives moderate returns and good for short term investment. It is ideal instrument to park your money for less than 1 year.
Debt funds gives money as kind of loan to companies. But Equity funds money invested on companies. Your money invested on companies and on return will get profit if companies performs better. If companies is not performing good, you have to bear the losses as well. Since equity mutual fund is invested in multiple companies and managed by experts, it is expected to give good returns.
Debt fund => Your money given as loan.
Equity Fund => Your money invested on companies. You are kind of shareholder of the company. You own the tiny percentage of company ownership.
Since you own the ownership, it is expected to give good returns as your money grows with company. You can directly invest to the equity/Stock market if you are expert in stock market. Otherwise find the better equity mutual funds and invest in it. Professional would invest your money for better returns.
It is all your money. Your money is invested as your money. investments will be in your name. Returns will come to you. No hidden or cheating in mutual funds.
Equity Oriented Large Cap Funds:
Large Cap funds invest mostly in big companies in stock market. Funds manager identify these companies by their market capitalisation. These companies are considered safe to invest because they are likely to be well-established players and leaders in their respective filed. This is the reason why large cap funds are considered suitable for average return expected equity investors. These funds are likely to offer modest returns as they invest in larger and established companies.
Equity Oriented Midcap funds:
Midcap mutual funds invest mostly in medium-sized companies. Mid cap companies are growing companies and investment on these provided based on their business stretegy. If they succeed, they will become large companies and investors will be rewarded handsomely. Investors who are eagar to encourage and believe in growing up companies should bet on these funds.
Equity Oriented Small Cap funds:
invest in small companies. These companies are started their business and newly launched, as there will be very little information about them available in the public domain. However, they can also offer very good return. They are suitable only for investors with understanding of small cap companies and funds. The business strategy or business model may fail to grow But if it grow, it will give the best returns to you.
Equity Oriented Specialty/Sector funds :
Sector funds invests primarily in a certain sector such as only in Banking, Infrastructure,FMCG, Pharma, Technology, companies. The specialty fund is often used to describe a variety of funds, including sector funds, index funds and international funds. If particular sector is growing in indian market, it would give better result. If industry is down, all the companies would go down and it would impact the fund as it invested only in that sector. It is good for longer investments or retirement planning.
Equity Oriented Index Funds:
In Indian market few of equities identified for BSE and NSE market. The economy of the market is mostly measured by these identified companies such as NSE and BSE inde. Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty). These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index. It may be mix of both large cap and mid cap funds.
Equity Oriented MultiCap Funds:
Equity oriented multicap funds are mix of all three funds Large cap, small cap and mid cap funds. The fund manager would follow all the equity market and invest the best of all 3 groups. It is good for exploring three funds in one investment.
Balanced/HYBRID Funds:
These funds invest in a mix of equities and debt investments. They try to balance the aim of achieving higher returns against by balancing between debt and equities. Part of investment invested in debt market and remaining in equities. So part would return kind of fixed return, part would grow in stock/Equity market.
Equity Oriented Balanced Funds:
Equity Oriented Balanced/Hybrid Funds are aggressive funds(try to get maximum return) hold more equities and fewer debts.
Debt Oriented Balanced Funds: Debt Oriented Balanced Funds are conservative (maximum on debt) funds hold fewer equities relative to bonds.Maximum in debt market and minimum in equity market.
There are other kind of mutual funds such as funds of funds, hedge funds, international funds. But you can plan all your investment and financial planning with above 9 types of mutual funds. Do not worry about other different and complex mutual funds. Make easy and simple investment.
Do not make investment complex and confuse. Be simple, steady investing.
In simple term, equities mutual fund would grow in market and invested companies grow. Fund managers analyze the companies and invest on equities to get better return for investors. All the mutual fund companies are well known to the indian banking customer such as sbi mutual fund, hdfc mutual fund,reliance mutual fund,uti mutual fund,franklin templaton mutual fund, ICICI mutual funds, DSP black rock.
Investing in equities is creating tiny partnership in the company. Equity mutual funds is creating partnership with multiple companies in single investment.
Equity may return 30% interest if companies perform very well. Otherwise return average 12% if market in volatile. It may return nothing or may lose the money in the market in worst case based on market condition. But mutual funds diversify the investment and fund manager try to reduce the loss by analyze the market. Let us explore on mutual funds. You would be more interested once you start learn the mutual funds and market. Let us learn together and grow the money in upcoming session.. The aim to reach,
Poor and middle class becomes richer by smart investing.
Happy investing !!