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.

A Quick Intro to Mutual Funds

What is an Equity Fund?

A mutual fund is a corporate body that collects the investment of a number of people and invests them in a variety of different stocks. The most common point with a mutual fund is for fund managers to invest in businesses that are likely to grow, therefore providing profits to the investors.
In India, according to SEBI Mutual Fund guidelines, an equity mutual fund scheme must invest 65% of its assets in equities and equity-related stocks.

Equity funds can be either Active or Passive. In active investment, a fund manager decides which stock to invest in, that will give maximum returns. In passive investment, the fund manager builds a portfolio of popular market stocks (like Nifty and Sensex) and invests in it. Passive investment is less risky but Active investment can provide quick returns.

Mutual Funds Basics

Why invest in Mutual funds instead of stocks?

Mutual funds help investors lower these risks by investing in a diversified portfolio of stocks in different sectors through fund managers who have sufficient experience and expertise in picking correct stocks. In this way, mutual funds are subject to lower company and sector risk. A clear understanding on mutual funds basics is vital.

Investors can invest in units of a variety of equity funds with as low as Rs.5000. In ELSS investments, you can get tax benefits only up to Rs.1.5 lakh in a financial year.

What are the different types of mutual funds?

Mutual funds can be classified based on a lot of different criteria. The most common type of mutual funds in India are:
• Equity Funds: A mutual fund that invests at least 65% of its assets in equities
• Debt Funds: A mutual fund that invests less than 65% of its assets in equity stocks.
• Hybrid Funds: A mutual fund that invests in two asset classes: equity and debt.

How to Buy Mutual Funds?

Mutual Funds can be:
• Bought online: You can invest in mutual funds by visiting our website MFSH and then opt for the mutual fund scheme most suitable for you.
• Download forms: You can select the appropriate mutual fund, then download the form and fill it up.
• Order Manual Forms: You can select the best funds that suit your needs or you can use apps that help in asset allocation and picking the best stocks for you.