A Mutual Fund is an investment product where money from different investors is pooled and invested into Stocks, Debentures, and Government Securities to generate returns as per the need of the customers.
Mutual Funds have now become a popular investment asset for investors – who don’t have the time or the heart to deal with day to day volatility of the stock markets. Mutual Funds also provide a host of other benefits over and above direct investing.
How many types of Mutual Funds are there?
There are 4 types of MFs based on the nature of schemes:
Equity Funds:
These funds primarily invest significant part of their corpus into Equity holdings. Types of Equity Funds include Diversified Equity Funds, Large-Cap Funds, Mid-Cap Funds, & Small-Cap Funds, Sector specific funds & Tax Saving Funds (ELSS).
Debt Funds:
They invest in debt papers issued by government authorities, private companies, banks & financial institutions. They ensure low risk & stable returns. Types of Debt Funds include Gilt Funds, Income Funds, MIPs, Liquid Funds, Short Term Plans, Gold Funds " Gold ETFs.
Hybrid Funds:
They are a mix of equity & debt funds aimed at providing investors with the best of both the worlds.
Commodity Funds:
In India, these funds invest into Gold Metal via Gold ETF & Gold Funds. Performance of these funds depends on performance of Gold Metal traded in the commodity markets.
There are 4 ways to deploy funds
SIP - Systematic Investment Plan:
Invest a fixed sum of money every month on a particular date for desired number of years to build the corpus which helps you to fulfil your goal. SIP is a goal based investment tool. One has a liberty to choose the type of scheme.
STP - Systematic Transfer Plan:
As it is always difficult to pin point the right time to put invest a corpus in the market, STP helps us in negating that risk. We will put the corpus in debt fund or in low risk hybrid fund & from there funds can be transferred in systematic manner to Equity Funds in phased manner.
SWP - Systematic Withdrawal Plan:
Different people have different needs. A 20 year old, would want to build a corpus for his Life & his goals, whereas a person at 50 years of age, needs monthly support from his current corpus. SWP provides a fixed sum of money every month on fixed date from the invested corpus. The beauty of the product is that, even after taking a fixed monthly withdrawal, the corpus grows if one stays invested for long term (say 10 years or more). Here also one has a choice to select the scheme as per his individual risk appetite.
Lump Sum:
It allows investor to invest in the mutual funds for any amount on one time basis. One time means, the investor can buy as and when he / she has the funds for investment.
