What is Mutual Fund

What is Mutual Fund?

A mutual fund is a company that pools money from many investors(you and me) and invests the money in securities such as stocks, bonds, and short-term debt.

Asset Management Company (AMC) is also referred as Mutual Fund Company or Money Management firm. Each Mutual Fund Scheme managed by Fund Manager and Research Team to analysis the securities, invest the money and drive the Fund Portfolio.

Types of Mutual Fund

Equity Fund
Debt Fund
Hybrid Fund
Solution Oriented Fund
Index Fund
Fund of Funds

Mutual Fund Return is better than Bank Fixed Deposit if you are invest in good mutual fund portfolio management.

Don’t invest all your amount in Mutual Fund and especially stocks.

Part of the your parking amount (Fixed Deposit) invest into Mutual fund which amount is not for instant use.

1. Equity Fund

An equity fund is a mutual fund that invest in stocks.

Stocks is an equity share of the company. If you buy a share of ITC or Tata Motors, then you are the owner of that share of that company.

Equity fund is High risk and High return. Most of the investors likes to invest equity fund with good fund management and portfolio.

Equity Fund Types

Multi Cap Fund
Flexi-Cap Mutual Fund
Large Cap Fund
Large & Mid Cap Fund
Mid Cap Fund
Small cap Fund
Dividend Yield Fund
Value Fund
Contra Fund
Focused Fund
Sectoral/ Thematic
ELSS

2. Debt Fund

This type of mutual that invests in short-term government securities, certificates of deposit and other highly liquid securities such as treasury bills and short-term commercial paper.

Debt is a fund raising by the private company. Investor can trust with issuing company and buy the Debt which is giving high risk and high interest.

Bond is also a fund raising by the Government, large company with secured which is giving less risk and less interest.

Debt fund is less risk and return than Equity fund. If you are new investor, first try with Liquid fund which is low risk for principal investment.

Debt Fund Types

Overnight Fund
Liquid Fund
Ultra Short Duration Fund
Low Duration Fund
Money Market Fund
Short Duration Fund
Medium Duration Fund
Medium to Long Duration Fund
Long Duration Fund
Dynamic Bond
Corporate Bond Fund
Credit Risk Fund
Banking and PSU Fund
Gilt Fund
Gilt Fund with 10 year constant duration
Floater Fund

3. Hybrid Fund

This type of mutual that invest in a mix of equity and debt securities are known as Hybrid Funds

Hybrid Fund Types

Conservative Hybrid Fund
Balanced Hybrid Fund
Aggressive Hybrid Fund
Dynamic Asset Allocation or Balanced Advantage
Multi Asset Allocation
Arbitrage Fund
Equity Savings Fund

4. Solution Oriented Fund

This type of mutual fund that helps to Investor to create long-term wealth for specific expense in future that included marriage, travel, retirement plan and child’s education or marriage. This fund having a lock-in for at least 5 years.

Solution Oriented Fund Types

Retirement Fund – Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier
Children’s Fund – Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier

5. Index Fund

This type of mutual fund that invest to the exact ratio of the specific index (Benchmark of the fund) and also it is computerized. It has a low expense ratio and low risk. Minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets.

Daily stock market updates in tv news with Nifty50 (50 companies) and BSE Sensex (30 companies) indexes. Most of investors like to invest in Fund Benchmark with Nifty50 or BSE Sensex and also these type of fund give return based on market move and also a passively managed fund or passive fund.

6. Fund of Funds

This type of mutual fund that invest to other types of best funds. AMC of this fund to invest in their funds or external AMC funds and also it can be Domestic Funds or Overseas Funds. It has good diversification & return but high expense ratio.

Conclusion

Now you got information about what is Mutual Fund and its fund types. Invest in Mutual fund based on your own risk, analyses the fund history and its returns. Don’t invest your money with one scheme. Invest your amount in Liquid Fund (Instant withdrawal), Hybrid Fund and Equity Fund. It will help to avoid the risk of principal investment.

Check the article How to invest in Mutual Funds.
Happy Saving!