A Beginner'S Guide To Various Types Of Mutual Funds
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A Beginner's Guide to various types of Mutual Funds

 
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Whenever people have queries regarding investing their money, Mutual Funds is a term that they often hear multiple times. Mutual Funds can be smart investments for almost any investor. But most times they do not know what is Mutual Fund or how does it exactly work. Mutual Funds are new age investments that offer adaptability and more choices to investors.They help diversify the investment horizon by offering distinctive types of based on the investment goals, be it short term or long-term.

Mutual Funds are a sort of budgetary vehicle made up of a pool of money gathered from numerous investors to invest in various securities like stocks, bonds, money market instruments and other assets that are professionally managed. The primary advantage of Mutual Funds is that they give economies of scale a more significant level of enhancement.They also offer liquidity and are overseen by proficient investors.

Mutual Funds are divided into various categories depending on the kinds of securities that they’ve targeted and the kind of returns they seek. There is a Mutual Fund for almost every type of investor or the investment approach. Mutual Funds are usually classified based on their asset class, investment objective, specialty, etc. Let’s look at some of the popular types of Mutual Funds .

  1. Money Market Funds: These are the funds that invest in short term fixed income securities such as government bonds, treasury bills, etc. They are one of the safest types of investments but usually have a lower potential return.
  2. Equity Funds: These are known as equity or stock funds. As the name suggests, this fund invests primarily in stocks. There are various types of equity funds since there are various types of equities.
  3. Fixed Income Funds: A fixed income mutual fund focuses on investments that pay a fixed set of returns on securities such as government bonds, corporate bonds, etc.
  4. Index Funds: Index Funds have become very popular lately with majority of investors. The value of the funds will go up and down as the index goes up and down. These funds do not require as much research as the rest of the funds.
  5. Balanced Funds: These types of funds invest in a mix of equities and income securities. They usually have more risk than fixed-income funds, but less risk than pure equity funds.
  6. Specialty Funds: These involve investment in specialized mandates such as real estate, commodities and socially responsible investing. For example, they can invest in environmental friendly organizations.
  7. Fund-of-funds: These are the funds that invest in other funds. They are very similar to Balance Funds. They attempt to make resource allotment and diversification, simpler for the investor. The Management Expense Ratio (MER) of these funds are higher than other types of Mutual Funds.

Build an investment strategy, manage your investments actively and choose the type of Mutual Fund you want to invest in, wisely.

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