Types of Mutual Funds To Know

Money plays an important role in everyone’s life. We all strive hard to earn and save for the future. Life being uncertain in nature, we never know when a financial emergency crops up, leaving us in a state of dismay. Hence, to save us in times of financial difficulties, several investment options have come into play. With a plethora of choices available, Mutual funds have become one of the most preferred forms of investment.

A Mutual fund is a professionally managed trust that pools the savings of many investors and invests them in securities such as stocks, bonds, short-term market investments, and commodities such as precious metals. Investing in a mutual fund can be a lot easier than buying and selling stocks, securities, and bonds on your own.

Mutual funds in India are constantly evolving and continue to offer a wide range of benefits it offers. They are the most flexible, hassle free, and comprehensive forms of investment. Here are various types of mutual funds.

Mutual funds are classified on the basis of maturity period and investment objectives

Based on Maturity Period:

Open-ended Fund:

This type of fund is available for purchase all throughout the year and is not listed on stock exchange. Investors can buy and sell any part of their investment at any time at a price linked to the fund’s net asset value. These funds do not have a fixed maturity date.

Close-ended Fund:

This type of fund has a defined maturity value. They are open for purchase at a particular period of time.

Based on Investment Objective:

Money Market Funds:

Money market funds invest in safer, short-term investments such as government bonds, treasury bills, and certificates of deposits. They are a safer form of investment but provide low returns as compared to other types of funds.

Fixed Income Funds:

These funds buy investments that pay a fixed rate of return such as government bonds, investment-grade corporate bonds, and high-yield corporate bonds. There is a regular flow of money in this type of fund.

Equity Funds:

These kinds of funds invest in stock and tend to generate high returns when compared to money market funds and fixed income funds. However, this type of funds are a risky form of investment.

Balanced Funds:

These funds invest in a mix of equities and fixed income securities. They are designed for investors who are looking for a mixture of safety of income and modest capital appreciation.

Index Funds:

These funds aim to track down the performance of a specific financial market. The value of this type of funds is based on the index of the market.

Specialty Funds:

These type of funds invest in a single industry, sector, or region of the world. They perform well when the industry performs well.