What is Mutual Fund ?
Mutual Funds is an investment instrument, which invests the funds in different sectors, industry or economy depending upon the scheme. With the help of mutual funds you can easily get exposure to equity market, bond market, money market and also global markets. These investments and investment decisions are made by Fund Managers of the specific scheme. Just like shares can be traded on their share price, mutual funds are bought/sold on the their 'NAV' (Net Asset Value). NAV's are calculated at the end of each trading day. NAV is calculated depending on the scheme's assets/liabilities, expenses/income and the outstanding units of the scheme. Also, just like you get share in case of equity share, in mutual funds the investors are allotted units. Mutual fund schemes have options/plans like Growth, Dividend Payout, Dividend Re-investment, etc.Mutual funds are basically of two types:
Open Ended: These schemes is available for transaction on all trading days.
Close Ended: These schemes are open for transaction only for a specific period.
Types of Mutual Fund:
Equity Diversified Funds
Equity diversified schemes invests in the equity market and diversify the portfolio. These schemes invest in large-cap, mid-cap, small-cap or blue-chip companies. The performance of these schemes depend on the growth of the stocks in the portfolio of the scheme.
Risk: High
Returns: High
Investment time horizon: More than 5 years.
Debt Funds
Debt schemes invest the funds completely in fixed income instruments like certificate deposits, commercial papers, treasury bills, government securities, bonds etc. These schemes are an alternative to investment in fixed deposits; since the returns are almost the same.
Risk: Low
Returns: Low
Investment time horizon: More than 1 year.
Balanced / Hybrid Funds
Balanced schemes are combination of equity and debt schemes. These schemes invest in equity and debt in specific ratio/proportion, say 70:30 in equity and debt, and rebalance the portfolio periodically when necessary. Different balanced schemes are available in different proportion of equity and debt.
Risk: Moderate
Returns: Above Average
Investment time horizon: More than 3 years.
Liquid Funds
Liquid funds schemes invests in money market instruments like treasury bills, commercial papers, call money, etc which have a very short time duration and have fixed returns. Investment in these schemes is suitable for people who wish to park lump-sum amount and earn higher returns than savings bank account.
Risk: Very Low
Returns: Very Low
Investment time horizon: Less than 1 year.
Gilt Funds
Gilt schemes invest the funds only in government securities. These schemes do not invest in any other investment instrument.
Risk: Low
Returns: Low
Investment time horizon: More than 1 year.
ELSS Funds
ELSS stands for Equity Linked Savings Schemes. These schemes are specially designed for investors who wish to avail tax deduction under Section 80C. These schemes invest minimum 65% of the funds in equity market and the balance in debt market. These schemes have a lock-in period of 3 years. If the investors exits before 3 years, then the deduction availed u/s 80C is waived and it is added to the income in the current financial year.
Risk: Moderate
Returns: High
Investment time horizon: More than 3 years.
Sectoral Funds
Sectoral funds invest the funds in a specific sector. It has portfolio of shares investing in that specific sector. Different sectoral schemes available are Pharma, I.T., Power, Telecom etc. The returns on these schemes depends upon the performance of the sector.
Risk: Very High
Returns: Average
Investment time horizon: More than 3 years.
Index Funds
Index funds replicate the equity index, say either Nifty or Sensex. These schemes invests the funds in the same proportion as the index. Thus, the returns are also similar to the returns of the equity market index.
Risk: Very High
Returns: High
Investment time horizon: More than 5 years.
Mutual Funds is an investment instrument, which invests the funds in different sectors, industry or economy depending upon the scheme. With the help of mutual funds you can easily get exposure to equity market, bond market, money market and also global markets. These investments and investment decisions are made by Fund Managers of the specific scheme. Just like shares can be traded on their share price, mutual funds are bought/sold on the their 'NAV' (Net Asset Value). NAV's are calculated at the end of each trading day. NAV is calculated depending on the scheme's assets/liabilities, expenses/income and the outstanding units of the scheme. Also, just like you get share in case of equity share, in mutual funds the investors are allotted units. Mutual fund schemes have options/plans like Growth, Dividend Payout, Dividend Re-investment, etc.Mutual funds are basically of two types:
Open Ended: These schemes is available for transaction on all trading days.
Close Ended: These schemes are open for transaction only for a specific period.
Types of Mutual Fund:
Equity Diversified Funds
Equity diversified schemes invests in the equity market and diversify the portfolio. These schemes invest in large-cap, mid-cap, small-cap or blue-chip companies. The performance of these schemes depend on the growth of the stocks in the portfolio of the scheme.
Risk: High
Returns: High
Investment time horizon: More than 5 years.
Debt Funds
Debt schemes invest the funds completely in fixed income instruments like certificate deposits, commercial papers, treasury bills, government securities, bonds etc. These schemes are an alternative to investment in fixed deposits; since the returns are almost the same.
Risk: Low
Returns: Low
Investment time horizon: More than 1 year.
Balanced / Hybrid Funds
Balanced schemes are combination of equity and debt schemes. These schemes invest in equity and debt in specific ratio/proportion, say 70:30 in equity and debt, and rebalance the portfolio periodically when necessary. Different balanced schemes are available in different proportion of equity and debt.
Risk: Moderate
Returns: Above Average
Investment time horizon: More than 3 years.
Liquid Funds
Liquid funds schemes invests in money market instruments like treasury bills, commercial papers, call money, etc which have a very short time duration and have fixed returns. Investment in these schemes is suitable for people who wish to park lump-sum amount and earn higher returns than savings bank account.
Risk: Very Low
Returns: Very Low
Investment time horizon: Less than 1 year.
Gilt Funds
Gilt schemes invest the funds only in government securities. These schemes do not invest in any other investment instrument.
Risk: Low
Returns: Low
Investment time horizon: More than 1 year.
ELSS Funds
ELSS stands for Equity Linked Savings Schemes. These schemes are specially designed for investors who wish to avail tax deduction under Section 80C. These schemes invest minimum 65% of the funds in equity market and the balance in debt market. These schemes have a lock-in period of 3 years. If the investors exits before 3 years, then the deduction availed u/s 80C is waived and it is added to the income in the current financial year.
Risk: Moderate
Returns: High
Investment time horizon: More than 3 years.
Sectoral Funds
Sectoral funds invest the funds in a specific sector. It has portfolio of shares investing in that specific sector. Different sectoral schemes available are Pharma, I.T., Power, Telecom etc. The returns on these schemes depends upon the performance of the sector.
Risk: Very High
Returns: Average
Investment time horizon: More than 3 years.
Index Funds
Index funds replicate the equity index, say either Nifty or Sensex. These schemes invests the funds in the same proportion as the index. Thus, the returns are also similar to the returns of the equity market index.
Risk: Very High
Returns: High
Investment time horizon: More than 5 years.
