What is Mutual Fund: Mutual fund is like a trust which invests the money of small investors or big investors in shares, bonds, debentures, government securities, fixed deposits and commodities etc. with an objective to earn maximum profit for the investors. Mutual fund is managed in very professional manners. As we know that for small investors, it is very difficult to have complete knowledge in respect of a safe investment. Therefore, he can invest his money through mutual funds which have professional person who have complete knowledge for safer investment of the investors. Although, risk is with mutual funds also but comparatively it is lower than if a small investor invests his/her money himself/herself.
TYPES OF MUTUAL FUNDS
- EQUITY FUND/GROWTH FUND:- Under these funds the money is invested in equity shares. In these funds risk factor is always there. The investors, who want to take more risk, can invest in these funds. These funds give a handsome profit also because these are based on equity market. Equity funds investment minimum 65% of its corpus in equity or equity related other instruments.
- DIVERSIFIED FUNDS:- Under these funds, the investment is made in different sectors of the market. It is little less risky than equity funds for the investors.
- TAX SAVING FUNDS:- By investing in these types of funds an investor can save the income tax according to the Indian Income Tax Act. These funds are very useful for the investors but investment is made under these funds for longer period.
- INDEX FUNDS:- Under these funds, the investment is made in index like CNX Nifty index, bank index. Etc. The profit or loss investment occurs as per the movement of index. These funds are suitable to them who can take more risk.
- FUNDS BASED ON SECTORS:- Under this scheme the funds are invested in a particular sector like pharma sector, bank sector, infra sector etc. These funds are also suitable to them who is ready to take more risk.
- DEBT FUNDS/FIXED INCOME FUNDS:- Under this scheme the maximum amount is invested in Bonds, Debentures, Government Securities, Fixed Deposits, commercial papers etc. These funds give the regular income to the investors. Though, the return from these funds may be less than other funds but these are very safe for the investor who does not want to take more risk. The investment under this scheme may be for medium or long term. These funds invest 65% of its corpus in fixed income securities.
- LIQUID FUND/MONEY MARKET FUNDS:- These funds are suitable for the investor who want to invest the money in those markets who can a very high liquidity. These funds are not suitable for small investors. These are suitable for institutions only who want their money liquidated on daily basis or for very short period.
- GILT FUNDS:- Under these funds the money is invested in government securities only. These funds are useful for the investor who does not want to take any risk and who wants to invest money for medium or long period.
- BALANCED FUNDS:- Under this scheme the money is invested in equity market and debt funds. These funds are less risky and suitable to the person who wants to invest for medium term or long term.
- FUNDS OF FUNDS:- Under this scheme, the funds invest in other funds.
The funds can be defined according to period wise also as under:-
OPEN ENDED FUNDS:- These funds are always open for investment. It means any investor can invest the money in to these funds any time at NAV on the day of investment. The investor can sell these funds any time also.
CLOSE ENDED FUNDS:- These funds can be subscribed at the time of launch of funds and have fixed maturity period, for example 2 to six years. These funds are listed in recognized stock exchanges.
INTERVAL FUNDS:- These funds have the features of open ended funds and close ended funds. The investor can purchase these funds from recognize stock exchanges on NAV any time or after an interval as mentioned in that particular fund. The investor can sell also these funds any time at NAV.
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