MUTUAL FUND

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, higher level of diversification, liquidity, and are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees, expenses and are always subject to market risks. Mutual Funds are best suited for persons who wish to get enriched by market movements but are unaware of market dynamics and/or don’t have time to access market regularly.

 

SYSTEMATIC INVESTMENT PLAN

Systematic Investment Plan, commonly referred to as an SIP, allows you to invest regularly a fixed sum in your favourite mutual fund scheme/s. In SIP, a fixed amount is deducted from your savings account every month and directed towards the mutual fund you choose to invest in.

  • Invest in fixed amounts regularly
  • Opt for monthly auto-payment
  • No worries about market ups & downs
  • Plan budget and expenses better
  • You can start investing in a mutual fund scheme via SIP with a minimum of Rs 500.

DEBT FUNDS

A debt fund is an investment pool, such as a mutual fund or exchange-traded fund, in which the core holdings comprise fixed income investments. A debt fund may invest in short-term or long-term bonds, securitized products, money market instruments or floating rate debt. On average, the fee ratios on debt funds are lower than those attached to equity funds because the overall management costs are lower.

Debt Funds are those which allocate unit-holders’ money in fixed income earning instruments i.e. treasury bills, corporate bonds, government securities, commercial paper, and other money market instruments.

GROWTH FUND

When you invest in an equity mutual fund, you can opt for a growth or dividend option. A growth fund mainly invests in younger but promising companies that can deliver supreme returns. A growth fund portfolio is made up of companies that register fast-paced progress and can deliver higher returns to investors. They, then, reinvests the earnings for the purpose of research and development and acquisitions and expansions etc. As it comprises of stocks with little or next to no dividend payouts, companies that pay out dividends are of little interest to a growth fund manager. However, when the market falls, it can hit the investors badly. Just as it can reap great capital gains when the market is high!

BALANCED FUND

A balanced fund is a type of hybrid fund, an investment fund that is characterized by diversification among two or more asset classes. The amounts the fund invests into each asset class usually must remain within a set minimum and maximum value. Another name for a balanced fund is an asset allocation fund.

KEY FEATURES

  • Balanced funds are mutual funds that invest money across asset classes, a mix oflow- to medium-risk stocks, bonds, and other securities.
  • Balanced funds invest for both income and capital appreciation.
  • Balanced funds serve retired or conservative investors seeking growth that outpaces inflation and income that supplements current needs.

SECTOR FUND

A sector fund is a fund that invests solely in businesses that operate in a particular industry or sector of the economy. Sector funds are commonly structured as mutual funds or exchange-traded funds (ETFs).

On the basis of this, the sector funds can be characterized as:

  • The funds which focus on a stock of a specific industry or business.
  • More volatile and riskier than the broad market.
  • Concentrated numbers of holdings, i.e. investing entirely or predominantly in a single sector

Some of the commonly used sector-specific funds are:

  • Banking funds: Here, the portfolio is mainly comprised of equities of different banks.
  • Real-Estate Funds: The sector specific mutual fund that concentrates its investment in the real-estate companies
  • Pharma Funds: The portfolio containing the investments in the pharmaceutical companies.
  • Technology Funds: The mutual fund that invests in the IT companies.
  • FMCG Funds: Here the investments are made in the fast-moving consumer goods companies.

HEDGE FUNDS

Hedge funds are still at an initial phase and are not as widely known as other mutual fund types. Though they too collect money from investors, they use highly complex strategies to ‘hedge’ risks and deliver high returns.

A hedge fund portfolio consists of asset classes like derivatives, equities, bonds, currencies and convertible securities. Hence, they are also called as alternative investments. As a collection of assets that strives to ‘hedge’ risks to investor’s money against market ups and downs, they need aggressive management. Unlike the typical equity mutual fund, they tend to employ substantial leverage. They hold both long and short positions, including positions in listed and unlisted derivatives.

PENSION FUND

A pension plan is a good way to secure your financial stability post-retirement. These pension plans protect you from any uncertainty that may come unannounced post your retirement.

There are different kinds of pension plans like:

  • plans that are sponsored by an insurer where the investment is solely in debt and are best suited for investors who are conservative
  • plans that are unit linked and invest in both equity and debt
  • the National Pension Scheme which invests either 100% in government securities, 100% in debt securities (other than government securities) or a maximum of 75% in equity.

LIQUID FUND

In the high interest rate scenario, if you wish your money to earn a bit while you hold them, then liquid funds can do a better job than savings account.

Liquid funds are simply debt mutual funds that invest your money in very short-term market instruments such as treasury bills, government securities and call money that hold least amount of risk. These funds can invest in instruments up to a maturity of 91 days. The maturity is mostly much lower than that.

Index Fund

Many investors are aware of the benefits of diversifying their portfolio across assets. Index funds often catch their eyes in this search as they refer to funds that invest in a wider market index – like the Sensex or the Nifty. All the stocks in these indices will find some representation in their investment portfolio. This theoretically ensures a performance identical to that of the index which is being tracked. Low expense ratio is its main USP.

An index fund is a mutual fund that imitates the portfolio of an index. These funds are also known as index-tied or index-tracked mutual funds.

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