home > BLOG > Different Types of Mutual Funds You Must Know About - Gill Broking

Different Types of Mutual Funds You Must Know About - Gill Broking

 23 Sep 2019

If you are an investor, chances are you have already heard about how profitable the mutual funds can be. Though they are associated with some level of risk, they can be a great investment option. By now, everyone knows about mutual funds. But not a lot of you know that there are different types of mutual funds out on the market. Yes, you read that right!

Today, SEBI has introduced over three dozen investment fund options. That said, it can be super confusing and even challenging for novices and professional investors to conduct research on all the fund categories and come up with the right decision. But the good news is you don't have to research all the investment categories. In this post, we have listed some important and lucrative fund categories every investor should consider. Without further ado, let's begin.

Low-risk Funds

Sure, mutual funds come with their share of risk. But did you know some fund categories are associated with a low-risk? First of all, there are three types of low-risk mutual fund. The fund category involves:

  • Ultra Short Duration fund
  • Low Duration Funds
  • Liquid Funds

The low-risk mutual funds fall into the category of debt funds. Specifically, there are two types of risk associated with mutual funds – credit risk and interest rate risk. When you opt for the low-risk mutual funds, you minimize (if not eliminate) each risk to a great extent. Let's see how it happens.

The lenders usually lend money for a very short period and that too only to the high-rated investors who have certain goodwill in the marketplace. The borrowers have to repay the money by the end of the maturity period. Meanwhile, they pay regular interest for the money they’ve borrowed.

Tax Saving Mutual Funds

As the name implies, this fund category allows investors to save some bucks on tax while advancing their investment portfolio. Commonly known as Equity Linked Saving Scheme (ELSS) mutual funds, this is the best investment option for people who don’t want to pay a hefty tax fee.

Before you invest, make sure that there is a three year lock-in time in the ELSS mutual funds. This means investors cannot withdraw anything before 3 years. This duration might seem a really long time, but the surprising fact is that it is the shortest lock-in duration compared to the other tax-saving mutual funds.

The ROI you receive is 100% tax-efficient, which means the investors are liable to pay tax only when their investment grows by more than 1 lakh in a year. Even in that case, you only pay 10% of tax on the income above 1 lakh.

Medium Risk Funds

If you want to take a moderate risk on mutual funds, you can choose the Hybrid Funds category. Though debt funds are the number 1 choice of most of the investors, you can choose a hybrid category where you get to invest in both equity and debt funds.

High-Risk Funds

Finally, high-risk funds fall in the equity fund category, where investors invest in companies. High-risk doesn’t imply heavy losses, but the high-risk funds involve a long duration i.e. more than 5 years. This is because equity markets are likely to face inconsistency in a short duration. By investing for more than 5 years, you are allowing your money to multiply gradually yet consistently.

There are more than 10 types of high-risk equity funds launched in the market. The most common ones are – multi-cap funds, large-cap funds, a combination of large & multi-cap funds.

7 Regular Types of Mutual Funds Investors Must Know About

Mutual funds investments are getting immense popularity lately. All thanks to their transparent, secure, and flexible nature. As compared to the traditional form of investment, mutual funds can make a great product for portfolio diversification. Furthermore, it doesn't involve any lock-in period (except for the tax-saving mutual fund deals such as ELSS). That said, the investors can redeem their money whenever they want.

Even though they are associated with market risks, mutual funds can grow your money super quickly. In this post, we'll discuss the 7 types of interesting mutual funds every investor should know about. Without further ado, let's get started:

1. Money Market Funds

First up on our list is the Money Market fund. They are specially designed for investors who are on the lookout for the short-term investment option with low risk. If you are new to the investment market and aren't willing to put all your savings at stake, this mutual fund securities is your pick.

Money market funds involve the investment made in government bonds, corporate paper, treasury bills, certificates of deposit, banker’s acceptance, and other such short-term investment securities. As mentioned before, it is a safer type of mutual investment. However, it has comparatively lesser earning potential than the other products.

2. Fixed Income Funds

As the name implies, these funds refer to the investment made in securities that guarantee a fixed rate of return. It is somewhat similar to the money market funds, however, the main reason for investing in fixed income funds is to receive returns on a regular basis.

The examples of such investments are high-return corporate bonds, government bonds, investment-grade bonds. It is an ideal mutual fund investment product for investors who want to earn regular income in the form of interest and fund earns. If you are willing to take high risk, consider investing in high-return corporate bonds.

3. Equity Funds

We all know what equity funds are. Basically, you have to invest your money in the stock market. An equity fund is the best investment for investors who want their money to grow fast. They offer a big earning potential, however, they are associated with a higher risk. While there is a chance you could hit the jackpot, you can also lose money if the stock value drops.

Equity funds are classified into different types of investments such as mid-cap stocks, income funds, small-cap stocks, value stocks, and large-cap stocks.

4. Balanced Funds

 The combination of equity and the mixed-income funds is known as the balanced fund's securities. Basically, this mutual fund plan is for the investors who want to try their luck in equity shares without having to risk a large amount of money. When you invest in balanced funds, you balance the aim of receiving a good amount of income without losing a lot of money.

Balanced funds are riskier than the fixed income funds but safer than the pure equity funds. You can either opt for conservative balanced funds or aggressive funds. While the former is associated with more bonds and fewer equities, the latter holds fewer bonds and more equities.

5. Index Funds

The earning of the investors who have purchased index fund securities depends on the particular index status. Your fund’s value fluctuates according to the index value. If index value increases, your fund’s value goes up and vice versa.

Index funds are associated with lower costs than the actively managed mutual funds. This is because the financial manager doesn't have to conduct a lot of research and take investment decisions. All you got to do is track the index value to know the current value of your mutual funds.

6. Specialty Funds

Specialty funds are based on the specialized mandates, for example, investment in commodities, real estate, and other such securities. It also includes the socially responsible fund, which is invested in organizations that look after human rights, diversity, and other social matters.

Make sure that speciality funds are mostly invested in the companies that deal with the social responsibility of our country. It avoids organizations engaged in military, weapons, tobacco, and alcohol, gambling, and etc.

7. Funds-of-funds

Last on our list is funds-of-funds. As it is quite clear from the name itself, these funds are known for investing in the other fund category. They are especially known for making the overall asset allocation and investment portfolio diversification a simpler process for investors. It is important to note that MER of these funds is comparatively higher than the pure mutual fund's investment.

Wrap Up

These were the most common types of mutual fund investment options. Before you start an investment, it is important to learn the risk profile, ROI, and other conditions. Each investment offers a different return and risk. Depending on your risk appetite and investment goals, you can choose any of the above-listed mutual funds.

 

ATTENTION INVESTORS:-

"Prevent Unauthorized Transactions in your Trading / Demat account --> Update your Mobile Numbers / email IDs with your Stock Brokers / Depository Participant. Receive alerts on your Registered Mobile / email IDs for trading account transactions and all debit and other important transactions in your demat account directly from Exchange / CDSL on the same day ......................Issued in the interest of Investors.

 "KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary."

"No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise our bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."