Mutual funds are a good investment avenue owing to their vast investment horizon. There are several types of mutual funds based on an investor’s need and appetite for risk. Some of the many types of mutual funds include:
- Money Market Funds
Money Market Mutual Fund is a mutual fund that invests in highly liquid and safe money market instruments so as to achieve a short-term income in cash or any cash equivalent. Fund managers collect the pool of funds invested by the investors and invest them in money market instruments such as Treasury Bills (T-Bills), Repurchase Agreements (Repos), Commercial Papers, and Certificate of Deposits (CODs). This investment is ideal for investors with a short-term investment horizon who aim to get low but safe returns that are highly liquid, within a short span of time that varies from a few days to a couple of months.
- Income (Debt) Funds
Income Funds are funds that invest in government and high-quality corporate debt that hold bonds which can be reaped by an investor at regular intervals (monthly, quarterly, half-yearly or yearly). This investment is ideal for investors who are risk-averse and have a long-term investment horizon who aim to get a low but steady income. This investment is not ideal for investors who are tax-conscious as regular income is taxable.
- Equity Funds
Equity Funds are a popular type of mutual funds that invest primarily in stocks. A fund manager aggregates the pool of funds invested by the investors in a variety of stocks that could be solely on those with large market capitalisation or a mixture of small and medium market capitalisation. This investment is ideal for budding investors who wish to expose themselves to the stock market with an aim to gain steady returns over a long period (say, at least 5 years).Click here to apply for Mutual Funds
- Balanced Funds
Balanced Funds invest in stocks and government bonds so as to achieve a regular income. The concept behind balanced funds lies in the inversely proportional relationship between stocks and bonds – stocks can give good returns but carry higher risk while bonds give lower returns while carrying lower risk – a hybrid of these two hence generates returns while limiting the downside. This is ideal for investors that have a long-term investment horizon who aim to gain steady returns with low financial risk owing to the ‘balanced’ distribution of funds.
- Tax-Saving Funds
Tax-saving funds, as the name suggests, are funds that allow an investor to save on taxes on your current income as per section 80C of the Income Tax Act that allow a tax rebate of up to INR 1,50,000 on the amount invested. Equity Linked Savings Scheme (ELSS) are the only ones currently that offer tax exemption on the invested amount. These funds invest primarily in the equity market and have a lock-in period of three years. These funds are ideal for investors who wish to get tax deductions on their current income while also seeking wealth creation.