A Brief On The Different Types Of Mutual Funds

by Vinita Solanki Web Master

While considering long term investments for the first time, selecting the right kind of instrument can be a daunting task. And when it comes to mutual funds, it’s sure to be a tough job of choosing the right type. Being clear of your investment objectives is step one. That in itself is a dilemma as you might be thinking about how you should determine the right kind. Your risk taking appetite is also something that could play crucial role.

With a wide array of mutual funds to choose from, make sure you have a full force plan in your head as to what your aim is and how much are you ready to invest. If done right, this financial instrument can promise you quality gains with a long-term objective. For your understanding, below are the types of mutual funds prevalent in the market today.

1. Equity Funds- Comprising of the largest part of the financial market investment are equity funds. These are invested primarily in stocks and carry a high risk-return ratio. This ratio is applicable on shares that are riskier and carry a potential for fetching higher returns. Investment in stocks can be made in small, mid or large cap companies focussing on individual sector or even diversified among various different ones. Hence, if you carry a high-risk appetite and a long-term outlook, consider investing in equity mutual funds.

2. Debt/Income Funds- Debt funds are invested primarily in corporate or government bonds. These are recommended if you look out for low-risk factor based investments. They happen to be a better option to generate a fixed income along with fixed returns. Irrespective of whether you have short-term or long term objectives, these funds work well for both causes. Another welcoming characteristic of debt funds is that you can avail indexation benefits in order to save taxes. A very prominent type of income fund is a liquid fund. These are short term where risks are lower and the returns are easily liquefiable.

3. Balanced Funds- These are hybrid funds that incorporate both, the equity funds as well as debt investments. Here, the objective is to generate high income from the equity proportion and get steady returns at the same time. Also, the presence of debt based instruments here help to balance out any losses you might face due to equity investments.

4. Gilt Funds- Gilt funds are exclusively invested in government securities. These come with no risk whatsoever. Here, the values of the fund units are dictated by factors like market volatility and the risk-return ratio. This type of mutual funds often comes in handy these days.

5. Global Funds- These are invested in debt and equity based instruments in the countries across the globe. For investors who carry a good reading of international market, global funds are specifically designed for them.

Now that you are aware of the various mutual funds running in the market, choose one according to your investment habits and goals. Happy investing!