Types of Mutual Funds

A mutual fund is when a number of investors come together to pool in their money. This collected money is then used by professional investors, who have a good know-how of the market, to invest on behalf of the investors. They can invest in equity funds, CODs, debentures, and treasury bills to name a few. When compared to stocks, dividends and other such investment options, these funds are a safer bet. They can help you reach your financial without much trouble. The type of mutual fund you invest in would depend on your age, financial position, risk tolerance and return expectation.

Mutual funds are professionally managed funds. They can be invested in securities such as stocks, bonds, market instruments and even precious metals. They are a good option for people who do not wish to enter the stock markets themselves. They instead, pool in their money, and let the professionals do the investment for them. Needless to say, they have higher returns than say a savings account or a fixed deposit.

The investment can be as little as Rs. 1000. What’s more, they don’t have to pay huge fees to consultants. So even if they lack the skills to make complicated investment decisions, they can allow professionals to make the right choices. When you put your money in such a fund, the portfolio manager decides and invests on your behalf, leaving you to enjoy the benefits.

Types of Mutual Funds

There are many investment options for these funds, such as equity funds and debt schemes, money market schemes, ETFs, fixed income schemes, money market schemes and more. Here are some of them:

Open-ended schemes:

These are the most liquid options in these funds. They do not have a fixed maturity. The units can be bought and sold at any time.

Close-ended schemes:

These schemes have a definite maturity period. Once you have invested in the scheme, the units can only be bought and sold at the stock exchanges. In this case, the market price could vary from the NAV.

Interval schemes

They are a combination of open-ended schemes and close-ended schemes. They can be bought and sold at NAV prices or be traded in stock exchanges, depending on the terms and conditions.

Growth Schemes

Growth schemes mainly invest in equity schemes. These are good for growth over a medium to a long period. With a focus on future appreciation, short-term loss in value is sometimes overlooked in these schemes. Therefore, they are not the most suitable investments for people who are looking for a regular income. They are instead, ideal for investors looking for growth in the long-term.

Income Schemes

These are more for the investors looking for a regular income. The schemes invest in bonds, debentures and other such fixed income securities. As the capital appreciation is restricted, these schemes are ideal for retired people and for people who are looking to add on to their earnings.

Balanced Schemes

As the name suggests, these can provide the benefit of both, growth and income schemes. These schemes can be invested in both shares and bonds, in just the right proportion. They are therefore ideal for investors looking for moderate growth.

Money Market Schemes

These schemes are ideal for corporate investors who need to invest their surplus funds. Although, they provide gains in the shorter periods, the returns may fluctuate periodically. They invest in short-term instruments such as CODs, inter-bank call money and treasury bills.

There are many other schemes, such as tax saving schemes, sector funds, index funds, exchanged traded funds and more, each having their own advantages and disadvantages.

Article's Source: http://articles.org/types-of-mutual-funds/
Author: Varun Nair