A mutual fund is a pool where investors put in their capital, which is further invested in securities like bonds, stocks, and similar assets. These funds are run by qualified portfolio managers, who distribute the assets of the fund and attempt to produce capital gains for you. The portfolio of a mutual fund is structured and managed to suit the investment goals set out in its prospectus.
To many people today, it seems an intimidating task to invest through mutual funds even if they have the risk capacity. As a beginner investor, you might have heard others saying ‘Mutual Fund Sahi Hai.’ But to know how this is true means you need to dig deeper into the fundamentals of mutual funds. Sometimes, you might not have adequate time to maintain a portfolio. It is where reliable financial advisors like FinEdge can help you understand why investing through ‘Mutual Fund Sahi Hai.’
There are different types of mutual funds investing through, which can help you achieve different goals.
Mutual Funds – Based on Asset Class
- Debt Fund
Debt funds are also called fixed-income funds. They invest in commodities such as government securities and corporate bonds. These funds are designed to provide you with fair returns and are deemed relatively less risky. You should invest through these funds if you are looking for a stable income and are risk averse.
- Equity Fund
Equity funds invest your capital into stocks. The primary objective of such funds is capital growth. Since equity funds are subjected to stock market fluctuation, there is a higher degree of risk involved in it. These are a good choice if you want to invest in long-term objectives, such as creating a corpus for retirement or buying a home. It is because the risk degree reduces over time.
- Hybrid Fund
As the name suggests, hybrid funds are a combination of equity and debt funds. They are further classified into various sub-categories, depending upon the division of equity and debt allocation. Make sure you know about the niceties about these funds, how they are different from others before you conclude that ‘mutual fund Sahi hai.’
Mutual Funds – Based on Structure
- Open-ended Mutual Funds
Open-ended mutual funds are open to investments during business days only. Such funds are acquired/sold at the Net Asset Value (NAV) and offer high liquidity. You can withdraw your capital on any business day as per your convenience.
- Close-ended Mutual Funds
Close-ended mutual funds have a pre-defined maturity period. You can invest in these funds when they are launched and withdraw money upon maturity. Although these mutual funds are listed as stock market funds, they have low trading volume.
Mutual Funds – Based on Investment Objective
- Growth Funds
Capital appreciation is the primary goal of growth funds. These funds accumulate a large portion of capital and are volatile in nature. It is safer to invest in these funds for the long term due to their high exposure to equity. Make sure you know when to invest in these funds through your knowledge or by hiring a financial advisor.
- Income Funds
Income funds are known to provide you with a stable income. Primarily, these funds invest in securities like bonds, certificates of deposit, government deposits, and similar. They are suitable for multiple goal periods. You can invest in these funds if your risk appetite is low.
- Liquid Funds
Liquid funds are suitable to meet short-term goals. They invest money in various commodities like term deposits, treasury bills, certificates of deposits, and commercial papers. By investing through these funds, you can plan to create emergency funds as they park your idle money for a few days to months, depending upon your requirements.
- Tax Saving Funds
Tax saving funds offer benefits under section 80C of the IT Act, under whom you are entitled to get tax deductions of up to Rs 1.5 lakh. ELSS or Equity Linked Savings Scheme is the perfect example of tax saving funds.
Planning investment decisions based on your objectives and risk appetite is a safe bet to align your finances. You can also take the help of reliable financial advisors like FinEdge, who aid in every step of the investment journey. They go lengths to ensure your portfolio is diversified so that you can say – mutual fund Sahi hai. Their financial planning-led process helps you meet critical goals and milestones through various investments.