Saturday, 24 October 2020

What Is Mutual Fund? Types of Mutual Fund and Benefits

For most of us investment always has been having fixed deposits buying gold or investing in real estate but there is another form of investment as well and that is a mutual fund.

What is Mutual Fund?

Many individuals coming together is mutual. The fund is nothing but money. So, many individuals pooling in money for a common purpose is called a mutual fund and the purpose here is to benefit from the capital market. now, these individuals don't have the required knowledge not the time to manage this pool but they want to benefit from the capital market and so.
What Is Mutual Fund? Types of Mutual Fund and Benefits


An asset management company appoints a fund manager to take care of this pool. This fund manager is a knowledgeable professional who continuously monitors the market and buys corporate or government bonds, Treasury bills stocks, and various kinds of deposits to satisfy the investment objective of this fund.


There can be various investment objectives but one mutual fund would be driven by only one investment objective and so for each of such objects which depends upon your risk-taking capacity. The time horizon that you have for your investment a mutual fund is available and you should invest in that kind of mutual fund.

Types of Mutual Fund.

There are three types of mutual funds you can invest in the first one is equity funds in which you directly apply in the stock market share market through mutual funds. The second is dead funds which are the safer funds in which you get a fixed rate of interest and the third is hybrid funds which also invest in stocks and debt funds.

So, mutual funds are broadly divided into three categories:

1. Equity Fund

Equity funds are mutual funds that invest majorly in equity stocks of the company. so you are directly applying or through a mutual fund in equity stocks. Equity funds are considered to be risky but they have a tendency to offer higher returns within the future . So, they are risky as well because you're directly applying in the stock market but it gives you excellent returns as well. For people who want to invest only in equities and get the maximum benefit of the stock market.


There are eight types of equity funds you can invest in and they are :

1. Large-cap fund
2. Mid-cap fund
3. Small-cap fund
4. Sector fund
5. Multi cap fund
6. Dividend yield scheme
7. ELSS fund
8. Systematic fund


2.  Debt Fund

Debt fund is now dead funds or mutual funds which usually invest in the government securities corporate bonds etc. So, it is a safe or fund in which you get a fixed rate of interest. Now debt funds are more stable and less volatile to the market conditions.


So, if you are looking forward to low risk and do not want higher returns as well and are acceptable with the lower returns you should definitely offer up debt fund.


Now debt funds are less risky than equity funds and the returns are also less. So, if you are not ready to take more risk then you should also compromise on the returns as well.


They are there are 16 types of debt funds

1. Overnight fund
2. Liquid fund
3. Ultra-short duration fund
4. Low duration fund
5. Money market fund
6. Short duration fund
7. Medium duration fund
8. Medium to long-duration fund
9. Long-duration fund
10.Dynamic bond fund
11.Corporate bond fund
12.Credit risk fund
13.Banking and PSU fund
14.Guilt fund
15.Kill fund with ten years constant duration
16.Floater fund

For people that want to take a position only in debt. 

3. Hybrid fund 

Hybrid funds are mutual funds which were also known as exchange-traded funds that invest in more than one type of investment security such as stock and bonds. This makes hybrid funds outstanding for a standalone option. Good funds for beginners and crore holdings in a complete portfolio of mutual funds. So, if you're big enough and you know your first time applying for a mutual fund sure, it is a good option to invest in hybrid funds.

For people who want to have a mix of both equity as well as debt.


There are seven types of hybrid funds :

1. Conservative hybrid funds
2. Balance the hybrid funds
3. Aggressive hybrid funds
4. Dynamic asset allocation or balanced advantage fund
5. Multi-asset allocation fund
6. Arbitrage fund
7. Equity savings fund

So, what we've seen so far is how a pool of money managed by a knowledgeable professional is called a mutual fund each mutual fund will have an investment objective.





Benefits of mutual fund

• A way to make diversified investments.
• managed by a financial professional
• Allow investors to participate in a wide selection of investments

Forms of Investment

• Equity share
• Bonds
• Fixed Income Securities

These funds the investment can be in the form of equity shares, bonds and other fixed-income securities and other similar assets. This is managed by a fund manager. who buys and sells securities with an objective to ensure effective growth of the fund.

1.Steady investment

If you are looking at a steady accumulation of real money for your retirement. you will hardly fail with a good mutual fund.

2.The expertise of a fund manager

Building wealth which will help you in times of need an expert is a must. fund manager brings with him the expertise not only about what needs to be done but also about what to avoid.

3.Diversification

A mutual fund investment tends to lower your risk as your investment is spread across various sections of the economy.

4.Regulated

Mutual funds in India are regulated by the Securities and Exchange Board of India SEBI forces transparency and the mutual funds which help the investors make an informed decision.

5.Liquidity

The investor can redeem are subscribed to mutual fund schemes anytime.  
So, the next time you move ahead with a mutual fund investment keep these three points in mind.  

1. Get your research right
2. Select a mutual fund that fits your level of risk
3. Ensure that the investment aligns with your financial goals.


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