23 Dec Types of Mutual Funds
Who said Mutual funds are meant only for those who can take risk? Or for those who can only invest for the long term. This is not at all true!
There are funds where you can invest only for a month & expect to earn returns better than savings banks rate or funds where you invest for a couple of years and expect to earn better returns than Bank FD’s.
In short for any type of financial goal, be it short term or long term there are Mutual fund for you to invest and earn better returns on your money.
Here we are listing all categories of mutual funds investments for you to get an understanding about them so you can invest in them & earn better returns.
The key thing here would be to know your financial goal & the timeline you have in your hand before investing and accordingly choose the funds.
Note – Even if you don’t have a specific money goal, it’s still a good idea to make your money grow. That’s a valuable financial goal we should all keep in mind.🤑🤑
Here are the categories of mutual funds
1) Liquid funds:
Financial Goals/Who should invest:
1) Park your money here instead of putting in bank savings account for all your annual payment commitments like insurance premiums, school fees & other big commitments due within one year.
2) Anyone & everyone should invest here.
Investment Tenure:
Anything less than one year
Where do they invest?
Liquid funds usually invest in government securities and bonds with maturities less than 91 days. Liquid Funds are mostly very safe investment options.
Returns:
Expect Better than bank savings rate
2) Short term/medium term debt funds:
Financial Goal/who should invest:
Invest here for any type of short term goals less than three years, also for investors who are looking for fixed income options can add these debt funds apart from investing only in Bank Fd’s . These funds are also a good option for retirees who are focused on retirement planning and currently parking their large cash surpluses only in Bank FDs.
Where do they invest?
They invest in government securities and bonds with maturities period ranging from 3-4 years.
Returns:
Expect to earn better return than Bank FD’s
3) Conservative Hybrid funds:
Financial Goal/who should invest:
Investor who want to start investing in mutual funds but are extremely risk averse can opt for these funds to begin with as equity allocation in these funds are restricted at 25% which make them less volatile compare to pure Equity Funds.
Invest here for any type of short term goals less than 3 years as part of diversification from your Bank FD’s or for any financial goal which are couple of years ahead from now.
Where do they invest?
They invest in mixture of debt securities & equity markets however, the overall equity component is less than 25% in the portfolio.
Returns:
One can expect to generate slightly better return than inflation & Bank FD’s.
4) AggressiveHybrid/Balance Advantage Funds:
Financial Goal/Who should invest:
1)Investors who want to reduce exposure to Equity (Stock Market) but also want to get good returns can invest in these funds as these funds have allocation towards equity as well as debt in their portfolio. These funds are also less volatile compare to pure equity funds but more volatile compare to conservative hybrids mentioned above.
2) Invest here for any type of financial goals which are 4 to 5 years away from now.
3) Also one who is nearing retirement and wants to start investing lump sum corpus for better returns these funds can be a good choice. Retirees also can invest some portion of their money in these funds to generate inflation beating returns.
Tenure:
4-5 years
Where do they invest:
They invest 50-75% of investor money in equity (stock market) & rest in government securities, corporate bonds and other debt options however, the proportions can dynamically change in Balance Advantage Funds.
Returns:
If one invests for 4-5 years, he/she can expect to generate better return than inflation but less than pure equity funds.
4) Equity Funds
Financial Goals/who should invest
You can invest here for any financial goal that are more than six years away from here like saving for your kids’ education, planning for retirement, or making big ticket purchases but you should be willing to see negative returns in your investments for some periods as stock markets will keep moving up & down time and again during your tenure of investments.
Returns:
If one invests for more than 5-6 years, he/she can expect to generate superior returns compare to most other investment options available in market.
Where do they invest:
Investor’s money in these funds are invested in stock of individual companies (listed in India) & some also in foreign companies.
So these are broadly the types of mutual funds available for investments with different tenure & different investment goals, there are few more categories but many of them fall within the same investment objective hence not covered here.
If you still havent explored these categories it’s good time to review your financial goals & start investing in them.Have a good day.
*Mutual funds investment are subject to market risk, returns discussed here are purely for informational purpose and not any assurity