Mutual funds provide a variety of investment options. These mutual funds can be chosen based on your risk tolerance, financial goals, and time horizon. Here's how it works:
Investors can subscribe to or redeem units according to the current Net Asset Value (NAV), on a continual basis. Open ended funds offer liquidity and flexibility.
These funds are listed on the stock exchange and have a fixed maturity date of 3-6 years. Closed-ended funds can be subscribed to by investors at the time they are launched.
These funds combine open and closed-ended funds. These funds operate mainly as closed-ended funds but may trade on stock markets and be available for redemption or sale at predetermined intervals at prevailing NAV.
You are most likely investing in equity growth funds if you do not have stocks. These funds are designed to grow capital over the long-term. Equity funds invest at most 65% of their corpus into equity and equity-related securities. These funds can invest in many industries or one or more specific sectors. If you are willing to take higher risks and have a long-term goal , these funds may be a good choice.
A simpler approach is to invest at least 65% in fixed income securities, such as bonds, corporate debts, government securities (gilts), and money market instruments. These funds are less volatile than equity funds.
Balanced mutual funds aim to provide stability in returns and capital appreciation. They invest in both fixed income and equities. These funds tend to invest in around 60% equity and 40% in bonds and debentures.
This fund is suitable if you're looking for liquidity, capital preservation and moderate income. Money market/liquid funds invest for less than 91 calendar days in safe instruments like Treasury Bills, Certificates of deposit and Commercial Paper. These funds are great for investors who are either corporate or individual investors and want to make moderate returns on excess funds.
Gilt mutual funds only invest in government securities. Gilt mutual funds don't have a credit risk, which means that the security issuer could default. It does come with an interest rate risk, i.e. Changes in interest rates can increase risk
The Income Tax Act allows tax deductions under certain provisions of the Income Tax Act 1961. ELSS mutual funds are designed to increase capital growth and suit investors who have a greater risk appetite for capital appreciation. Tax saving funds are available for long-term investments. They come with a 3-year lock-in period.
Index funds attach to a specific index, such as the S&P CNX NIFTY or the BSE SENSEX. They are linked to the index's performance. The portfolio is made up of stocks that are part of an index. Each stock's weightage is determined in accordance with the index. The Index will generate more returns than the portfolio.
Sector-specific funds invest only in securities that are relevant to a particular industry or sector, such as FMCGs, Pharmaceuticals, IT, and so on. These funds' returns are influenced by the performance in the relevant sector/industries.Sector funds allow an investor to diversify funds across multiple companies within an industry. These funds are more risky because their performance is directly tied to the performance of the entire sector.