What Type Of Mutual Fund Should I Invest In - People keep asking me why there are so many different types of mutual fund schemes in India. We need to understand that a mutual fund is just a bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. And because of different investment objectives, there are different types of mutual funds.
The mutual fund will have a fund manager (a team of experts) who is responsible for investing the money collected in certain securities (stocks or bonds). When you invest in a mutual fund, you buy shares or parts of the mutual fund, and so when you invest, you become a shareholder or owner of shares in the fund.
What Type Of Mutual Fund Should I Invest In
Profit or loss is shared by investors in proportion to their investments. Mutual funds usually come up with a number of schemes with different investment objectives that are launched from time to time. A mutual fund must be registered with the Securities and Exchange Board of India (SEBI), which regulates the securities markets, before it can raise funds from the public.
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These funds invest most of their corpus in equity funds. The fund structure may vary for different schemes and the fund manager's outlook for different stocks. Equity funds are sub-classified depending on their investment objective, as follows:
Equity investments are intended for a longer time horizon, which is why equity funds rank high on the risk-return matrix.
The purpose of these funds is to invest in debt securities. Government bodies, private companies, banks and financial institutions are some of the main issuers of debt securities. By investing in debt instruments, these funds ensure low risk and stable income for investors. Debt assets are further classified as:
As the name suggests, they are a mix of equity and debt funds. They invest in both equity and fixed income securities which are in line with the predetermined investment objective of the scheme. These programs aim to offer investors the best of both worlds. The equity portion provides growth, and the debt portion provides stability of yields.
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A mutual fund is a type of mutual fund that invests in highly liquid, short-term securities. This may include cash, cash equivalents and highly rated debt securities with short maturities. Money funds are designed to provide investors with high liquidity with a very low level of risk. Money market funds are also called money market mutual funds.
Growth schemes are also known as equity schemes. The aim of these schemes is to ensure an increase in capital value in the medium and long term. These programs typically invest a large portion of their fund in stocks and are willing to take a short-term decline in value for potential future appreciation.
Income schemes are also known as debt schemes. The purpose of these schemes is to provide regular and constant income to investors. These programs generally invest in fixed income securities such as bonds and corporate bonds. Capital appreciation in such programs may be limited.
Index schemes try to replicate the performance of a particular index like BSE Sensex or NSE 50. The portfolio of these schemes will consist of only those stocks that make up the index. The percentage of each share to the total ownership will be identical to the weight age of the share index. Therefore, the income from such schemes would be more or less equal to that of the Index.
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A closed-end fund or scheme has a fixed maturity period, e.g. 5-7 years. The fund is open for subscription only during the period specified at the time of initiation of the scheme. Investors can invest in the scheme at the time of initial public issue and thereafter they can buy or sell shares of the scheme on the stock exchanges where the shares are listed. To provide an exit route for investors, some closed-end funds offer an option to sell the units in the mutual fund through periodic redemptions at NAV-linked prices or are listed in the secondary market.
An open-end mutual fund is the most common type of mutual fund available for investment. An investor can choose to invest or transact in these schemes whenever he wants. In an open-end mutual fund, there is no limit to the number of investors, shares or total size of the fund, unless the fund manager decides to close the fund to new investors to manage it. The value or price of a unit of an open-end mutual fund is determined every day at the close of the market and is called the net asset value (NAV).
Interval schemes are those schemes that combine the features of open and closed schemes. Units may be traded on an exchange or may be open for sale or redemption during predetermined intervals at prices related to NAV. FMP or Fixed Maturity Plans are examples of these types of schemes.
And there are new categories like ETFs and gold funds. We hope you are now clear about the various types of mutual fund schemes in India. A mutual fund is a financial vehicle that pools shareholders' assets to invest in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are managed by professional money managers who distribute the fund's assets and try to generate capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to meet the investment objectives set out in its prospectus.
What Type Of Mutual Fund Should I Invest In?
Mutual funds give small or individual investors access to professionally managed portfolios of stocks, bonds and other securities. Therefore, each shareholder participates proportionately in the profits or losses of the fund. Mutual funds invest in a large number of securities, and performance is typically tracked as the change in the fund's total market capitalization – derived from the overall performance of the underlying investments.
Most mutual funds are part of larger investment companies such as Fidelity Investments, Vanguard, T. Rowe Price and Oppenheimer. A mutual fund has a fund manager, sometimes called its investment adviser, who is legally bound to act in the best interest of the mutual fund's shareholders.
The value of the mutual fund depends on the performance of the securities in which it is invested. By buying a unit or share of a mutual fund, the investor is buying the performance of his portfolio, or more precisely, a portion of the value of the portfolio. Investing in a mutual fund share is different from investing in stocks. Unlike stocks, mutual fund shares do not give voting rights to their holders. A share in a mutual fund represents investments in several different stocks or other securities.
The price of a mutual fund unit is called the net asset value (NAV) per share, sometimes expressed as NAVPS. The NAV of the fund is obtained by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. Outstanding shares are those held by all shareholders, institutional investors and company officers or insiders.
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Mutual fund shares can usually be bought or purchased at the fund's current NAV, which does not fluctuate during market hours, but is settled at the end of each trading day. The price of the mutual fund is also updated when the NAVPS is settled.
The average mutual fund holds a variety of securities, which means that mutual fund shareholders get diversification. Consider an investor who buys only Google stock and relies on the company's earnings success. Since all their dollars are tied up in one company, profits and losses depend on the success of the company. However, a mutual fund may hold Google in its portfolio where the gains and losses of just one stock are offset by the gains and losses of other companies within the fund.
When an investor buys Apple stock, they buy partial ownership or a share in the company. Similarly, a mutual fund investor buys partial ownership of the mutual fund and its assets.
Investors typically earn mutual fund returns in three ways, usually on a quarterly or annual basis:
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When researching mutual fund returns, an investor will see the "total return," or the change in value, either up or down, of an investment over a period of time. This includes any interest, dividends or capital gains the fund has made, as well as the change in its market value over time. In most cases, total returns are calculated for periods of one, five and ten years, as well as from the day the fund was opened or the date of establishment.
There are several types of mutual funds available for investment, although most mutual funds fall into one of four main categories that include stock funds, money market funds, bond funds, and target date funds.
As the name implies, this fund invests mainly in equity or shares. Within this group there are various subcategories. Some equity funds are named according to the size of the companies they invest in: small-cap, mid-cap, or large-cap. Others are named according to their investment approach: aggressive growth, income-oriented, value, and others. Equity funds are also categorized by whether they invest in
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