6 types of mutual funds you should know about
Here are 6 types of mutual funds which give you the option to invest your money across various assets like equity, debt and gold:
- Equity Funds: Investments that you make in equity or stocks are called equity shares or equity funds. However, you should invest in equity funds only if you are willing to take a risk and can afford to invest a big amount for a long period. The types of equity funds that you can invest in are –
- Diversified Funds: As the name suggests, these funds are spread across different companies regardless of the size or the sector and are meant for investors who do not want to invest a large amount in any one asset. These companies include large-caps, mid-caps as well as small caps.
- Sector Funds: Sector funds means making an investment in any one commodity, instead of spreading out funds in various assets. The returns you receive in this kind of an investment is usually higher, but it is riskier compared to diversified funds. You will have to keep a constant tab on the mutual fund performance and exit at a particular time, so as to avoid loss.
- Index Funds: These funds consist of an investment portfolio constructed to match or track market index components. An index fund offers broad market exposure, and involves low operating expenses and low portfolio turnover.
- Debt Fund or Fixed Income Funds: If you are seeking a regular and steady income you can choose to invest in these types of mutual funds in India, as they let you earn a good amount of money. But you need to keep your money invested for at least 1-3 years. If the money is invested for three years or more, there will hardly be any tax deductions from your taxable income or the earned money. However, if the money is withdrawn before, a significant amount of tax will be charged on your gains and profits.
- Liquid Funds or Money Market Funds: Liquid Funds are debt mutual funds that invest your money in short-term market instruments holding the least amount of risk. These instruments can include treasury bills, government securities and call money. Your investment could be for as short as a day.
- Gilt Funds: These are funds invested in government and central securities, and which, as a result, protect investors from credit risk. So if you want to invest in mutual funds but are averse to risk, this type of mutual fund is suitable for you.
- Balanced Funds: These funds are invested in both risky shares as well as those that are relatively safe, and can grow your wealth and provide regular income too. If you are a moderate risk-taking investor who is willing to make medium to long-term risks, you can opt for balanced mutual funds.
With mutual fund investments, you can spread your money out in small amounts over a lot of different investments. This way, you won’t have too much money invested in any one thing. When you have investments in different companies, a loss on any one investment will not affect the rest of your money and thus, you can continue to reap the benefits of the other investments.
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