A mutual fund is a combined capital collected from different investors ranging from few thousand to Millions , the investor can be –
- Individual person
- Institutional investor/ banks/ some other large pool of money.
Then the capital Pooled from different sources is invested in proportion in companies’ shares, stocks, bonds, debentures commodities and fixed deposits depending on which fund you take.
The fund is represented by sharing of funds by thousands of investors, like stocks have a market value, for the funds of all investor, they have net asset value (nav ) for representing their trade price.
The purpose of mutual fund is the growth in its (nav) for which mutual fund is managed by expert fund managers, who are professional in this field and are paid with handsome salaries.
Mutual fund types –
- Equity funds- These funds invest their capital in equity shares of companies, they invest at least 70 percent of their capital in equity and rest in other instruments of money market. The risk is higher and probability of growth is also higher.
b-debt funds– these funds invest their money in the government securities, corporate bonds, government bonds, commercial papers, fixed income assets, certificate of deposits , they at least invest 70 percent in debt , rest can be in equity .Risk is lower and growth is almost predetermined .
- Tax saving funds– they generally invest in equities , they are eligible for income tax deductions , they have lock in period of investment say 3 years., they have high risk , high returns.
- Funds of funds– these fund invest their money in other mutual funds; these can be equity, debt or hybrid.
- Balanced funds or hybrid – these funds invest in both equities and debt, it depends upon their time period of investment, they manage their portfolios of 60-40 percent either debt or equity, vice versa, depending upon time period.
- Index funds– these funds invest in one index of market and create as many as portfolio possible in that index, there performance is tracked by the performance of that index .
- Sectoral funds – these funds invest in one sector or industry of market , and balance their portfolios in that sector only.
Mutual fund on the basis of structure-
Mutual fund can also be classified on the basis of structure, they are classified as
- Open ended funds-these are funds that are bought and sold any time day in market, these are liquid funds.
- Close ended funds– these funds have maturities on which they expire.
Growth Mutual funds—
- These are growth oriented funds, that give growth quite more than fixed income instrument like certificate of deposits, bonds
- They generally invest in equities
- They proportion of debt is lower
- They have risk component involve in them also.
Fixed income mutual funds-
- As the name suggest they provide fixed income to investors
- They provide income generally more than fixed deposits
- They are risk free investment options
- They invest their money in companies and government scheme that are only open for big money of market. For more insight in –
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