Sunday, June 24, 2018

Mutual Fund | Importance and Types of Mutual Fund

What is Mutual Fund

Mutual Funds can seem intimidating for ones who don’t know about it so here we are going to discuss simple definition which makes it uncomplicated for our visitors. It is a financial gadget which draws money from an overabundance of investors.  It is the genuine fund which produces mutual contribution among massive numbers of people who are investing as well as in a variety of assets and securities including debts, equities, government securities, liquid assets like funds, bonds and lot more.

Mutual Fund

Importance of Mutual Fund

On the basis of the contributed portion, gains, rewards, risks, profits, and losses can be easily calculated, this portion of the investment is called mutual fund. On another way, we can also say that MF is trust having its own sponsors. Mutual funds are registered with Securities Exchange Board of India (SEBI) which is accountable for approving the Asset Management Company (AMC) which manages the fund.

Types of Mutual Funds

With the various types of investment prospects which is based on their asset class, investment objective, and structure mutual funds can be divided in following terms.

Equity Funds

Equity Funds capitalize money in equity shares as well as shares which is provided by the different corporations. Although such investments involve high risk, such funds are more likely to return.

Debt Funds

By delivering the fixed returns to the investors these funds invest in Govt bonds, company debentures, and other fixed-income instruments. It is the main reason that Debt Funds are considered to come with very low risk and fixed returns.

Money market funds

In Money market funds, the currency will be invested in liquid assets which are CP, T-bill etc. if you want to collect quick and moderate return from your investment then this is the best option for you.

Balanced or Hybrid Funds

Hybrid Funds capitalize in a diverse category of high risk and low-risk property classes to balance the risk as well as to balance the return. In certain cases, the equity portion is higher than debt whereas it is contradictory in others. This will develop a balance between the risk and the return by dividing your money in among multiple securities.

Sector Funds

The investment is done in any specific sector in these types of funds. Sector funds like the infrastructure funds capitalize only on the companies and instruments that are related to the infrastructure sector. As a result, the returns from this type of funds are limited to the performance of that particular sector. However, the associated risk in such schemes is dependent on the nature of the chosen sector.

Index Funds

Index funds are those that mimic the performance and copy the returns of any specific index. You can understand it by the illustration purchasing the shares which represent the BSE Sensex.

Tax Saving Funds

Under the Income Tax Act, Tax Saving Funds funds primarily invest in equity shares and all investments made in this type of fund are eligible for tax benefits. Although these funds come with high-risk, if the fund's performance is good then the probability of getting higher returns is also high.

No comments:

Post a Comment