The Different Kinds of Mutual Funds

One great way of earning some extra cash besides your salary is investing in a mutual fund scheme. The idea is easy enough. You find a scheme you like, you make an investment and basically start making a profit in the form of dividends. But sometimes all that is easier said than done. With the sheer number of mutual fund schemes out there, it sometimes gets difficult and often confusing to find a scheme that best suits your various needs. But, before you find out about the different types of mutual funds, you need to know what it actually means and then go from there.

So, what exactly is a mutual fund?

A mutual fund is a pool of money that is collected from investors like you and handled by a professional. Your fund manager takes the money and invests it into buying securities like bonds and equities and what not. Depending on the performance of your said securities, you make a profit in the form of dividends. Although some mutual funds allow you tax benefits instead of dividends. 

Now, there are many different kinds of mutual fund schemes out there, giving you the option to choose according to your needs and tastes. Some of them have been discussed below:

• Systematic Investment Plans

The systematic investment plans or SIPs allow you to invest tiny sums of money periodically instead of investing a large lump sum. This a specified amount of money is deducted from your account on a quarterly, monthly or weekly basis.

• Equity Funds

Equity funds allow you to invest a large amount of money to buy shares of a company or an organization. This means a percentage of the profit made by your shares will be yours.

• Debt Funds

To know what is debt fund, you need to know that sometimes companies require financial help that they derive from your investment. So, the company is legally bound to pay you interest money each month. If the company cannot stay afloat and dissolves, you get your money back.

• Liquid funds

Liquid funds are debt funds where you invest for a short period of time like a day to maximum a period of 6 months. The investments are made of short-term securities like government securities, treasury bills, and call money. With the liquid mutual funds, you can redeem your money within a day.

All the mutual fund schemes out there, including but not limited to the ones listed here, also offer what one calls the direct mutual find. This type of fund is the opposite of a regular fund where you employ a broker or a distributor to invest with the AMC. Instead, you skip the process and invest directly with the AMC. Thus, you save money when it comes to distributor fees.