Investment objectives and their classification

Mutual fund schemes can be classified according to their investment objectives. Equity Funds: Equity-oriented Schemes are those that invest primarily in equity and equity-related instruments. These schemes aim to increase capital over the long-term and medium-term. These schemes are best suited for long-term investors who have a greater risk appetite and a longer investment horizon.

Types of Equity Funds

Diversified Funds

Multi-Cap Funds: These funds invest across market capitalization, i.e. In large, small and mid-cap companies. Large Cap - These funds invest primarily in large companies. Large cap companies generally have a slower growth rate than mid-cap companies and are therefore more risky than smaller companies. These companies are also called blue chip firms.

Mid Cap: These funds invest primarily in mid-cap companies. Mid-cap companies have higher growth rates than large companies.

* SmallCap: A company with a relatively small market capitalisation and a relatively new company is called'small cap. The small cap companies are the most risky but have the greatest return potential.

* Tax Saving Fund - These funds also go by the names Equity Linked Savings Schemes, (ELSS). ELSS schemes allow for investment of up to Rs. These schemes are eligible for Section 80C deductions under the Income tax Act 1961. However, they have a 3 year lock-in period.

* Equity International: These funds invest into companies from foreign countries. An investment could be made in a specific country (e.g., China, US fund etc.). or diversified across countries or region like Europe, Asia etc.. Diversification can be achieved by seeking exposure to foreign stocks within a portfolio. AMCs usually tie up with foreign funds (called the 'Underlying Fund'), and in India, they launch a "Feeder Fund". The underlying fund invests the money from the feeder fund. AMCs may also invest directly in equity securities from international companies. These schemes allow local investors to invest in rupees to purchase the units. For overseas investments, the rupees can be converted to foreign currency. Investing in these schemes can expose you to foreign currency risk. International equity funds are treated similarly to debt funds in tax terms. * Equity Income/Dividend Yield Schemes: Dividend yield strategies generally invest in a portfolio of companies that have a high dividend yield. This provides steady cash flow through dividends.

(4) Sector Funds Sector funds invest only in companies within a specific sector. A banking sector fund, for example, will only invest in shares of banks. c) Thematic Funds : Thematic Funds invest according to an investment theme. An example of this is an infrastructure thematic fund, which invests in shares of companies directly or indirectly connected to the infrastructure sector.

d) Arbitrage Funds: These funds take advantage of arbitrage opportunities so that risk is minimized and a return is achieved. Arbitrage can be achieved by taking advantage a price difference of the same asset between two or multiple markets, such as taking advantage the mispricing between cash and derivatives markets. These funds have a low risk-return tradeoff. Index Funds: Index Funds are invested in companies that make up the index. They aim to create a market index and to provide a rate or return that is comparable to the market. However, tracking errors may occur. These funds invest in income-oriented debt securities such as Treasury Bills, Government Securities, Bonds and Debentures. These schemes are less risky than equity, but offer lower returns.

Gilt Fonds: These funds only invest in Government securities. Government securities have no default risk. These schemes' NAVs can fluctuate as a result of changes in interest rates or other economic factors, just like income-oriented or debt-oriented schemes. Money Market/Liquid funds : These funds are designed to provide liquidity, capital preservation and moderate income. They invest in short-term, safer instruments like certificates of deposit and commercial paper. These schemes are mostly used by individuals and institutions to store their excess funds for short periods. These funds are protected from fluctuations in the interest rates in the economy and can capture current yields in the market.

Balanced Funds: These funds aim to allocate the total assets in the portfolio mix debt and equity. Investors have the option to choose from a single mutual fund that can combine both income and growth objectives. They invest in stocks (for growth), and bonds (for income). They are also known as equity-oriented funds, and they have the same tax treatment as an equity fund. They have a risk profile and average return that falls somewhere between growth and debt funds. Monthly Income Plans: These plans aim to provide regular income through the declaration of dividends. The majority of its investments are in debt securities. To increase the scheme's yield, however, a small portion is invested in equity shares. Monthly Income Plans are also known as debt-oriented hybrid schemes. However, 'Monthly Income" is not guaranteed and depends on the scheme's distributable surplus. Capital Protection Oriented Schemas : These mutual fund schemes aim to protect capital by ensuring that the portfolio structure is appropriate. The scheme's portfolio structure is what determines the orientation to capital protection. It does not depend on any insurance coverage or bank guarantees. These types of schemes must be in compliance with SEBI's requirements. (5) was terminated in nature. is listed on the stock exchange. The intended portfolio structure must be obligatory rated by a credit agency. One common portfolio structure is to reserve a large portion of assets for capital safety. The remainder could then be invested in high-rated debt instruments. To increase capital appreciation, the remaining amount would be invested in equity and equity-related instruments. Capital Protection Oriented schemes shouldn't be confused with Capital Guaranteed'.

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