Mutual funds – Benefits and Types of Mutual Funds

Mutual funds – Benefits and Types of Mutual Funds

Everyone wants to invest its hard-earned money in the best available options and He/She may also wish that their money should be managed by a professional fund manager or financial firm. Usually, we see investors with larger investments hire those professional services to earn the best possible returns.

Is it possible to get those financial services with small investment?

Well yes in the mutual funds market you can because your investment is always closely monitored by the professional fund managers or financial firms. Mutual funds are one of the best options these days for investment.

In this investment market investors has the option to have a diversified portfolio to earn the best possible returns. As mutual funds allow us to maintain a diversified portfolio which means we can invest our money in multiple markets that allow us to get more returns on investment and also investors are not alone they are always guided by professional fund managers.

Mutual funds and its types

Equity mutual funds – In equity mutual funds investor invests 65% of its funds in the equity market and other equity-related instruments. The equity market is always dynamic and volatile which increases the chances of getting higher returns but at the same time, there are also higher chances to lose due to market volatility. The investor has options to put his/her money in different companies based on companies’ market caps such as large-cap, mid-cap, and small-cap securities.

– Large-cap funds –  Large-cap funds are those which invest in shares/stock of companies with large market cap. These companies are usually top 100 companies of equity market. These companies are usually very stable and risk-free.

– Mid-cap funds – Mid-cap funds are those which invest in shares/stock of companies with mid-market cap. The companies which are ranked between 101 to 250 in the equity market are mid-cap companies.

– Small-cap funds – Small-cap funds are those which invest in shares/stock of companies with mid-market cap. The companies which are ranked between 251 or below in the equity market are small-cap companies. These are usually very volatile and can provide much higher profits as compare to large and mid-caps but at the same time, risk of loss is also high.

– Index funds – Index funds refer to the investment in popular market indexes such as BSE Sensex and NSE Nifty and return depend on the movement of the index itself.

Debt mutual funds –  In debt mutual funds investors invest 65% of their funds in the debt market and other debt-related instruments. Debt funds are ideal for low-risk tolerance investors as debt fund is not dependent on market fluctuations so profit margins are predictable in beginning.

Debt funds are further categorized in various categories

– Dynamic Bond Funds – Dynamic Bond Funds are those schemes of debt market where fund manager modify portfolio with fluctuations of interest rates.

– Income funds – Income Funds invest in instruments which come with long maturity period and it provide stable returns.

– Liquid Funds – Liquid funds are those debt funds which invest in instruments which mature within ninety-one days. Liquid funds are one of the great option to earn profits and they offer better returns in comparison with regular savings account.

– Hybrid Mutual Funds – As the name suggest hybrid mutual funds are combination of both equity and debt instruments. Hybrid mutual funds Offer investor a diversified portfolio and offer better returns. Fund manager can suggest modifications of portfolio with ups and downs of market.

– Equity-Oriented Hybrid Funds – Equity-oriented hybrid funds invest 65% of total funds in equity related instruments and the rest is invested on debt related instruments.

– Debt-Oriented Hybrid Funds – Debt-Oriented Hybrid Funds invest 65% of total funds in debt related instruments and the rest is invested on equity related instruments.

– Monthly Income Plans – In this scheme majority of portfolio is invested in debt instruments for steady returns and investor has option to to select monthly, quarterly, half yearly and yearly dividend mode. Equity investment in this scheme is restricted below 20%.

Benefits of mutual funds

– Portfolio management by professionals – In mutual fund is that each investor gets access to professional money management. It is always very difficult for an investor to create and manage diversified portfolio of investments on his own with limited amount of money.

– Diversified portfolio – One of the key benefit of mutual fund is diversified portfolio, investor has option to earn from both equity and debt market.

– Low starting cost – Investment in mutual funds can be started with small amount of money which make it suitable for both small and big investors.

Team R Wealth

Team R Wealth

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