There are different types of mutual funds available in Indian market. It is a difficult task for an investor to choose from the list. But you can choose appropriate mutual funds as per your requirements like equity-linked mutual funds, debt funds and hybrid funds.
An ideal portfolio must contain four or five types of mutual funds. Your portfolio needs to be diversified. But how will you select the suitable mutual funds?
The investors who have the ability to take risks go for equity mutual funds. If you are interested in securing regular income and need investment as protection, then you can invest in debt mutual funds. Let us observe the different types of mutual funds in detail.
1. Equity linked mutual funds
With these funds, you are investing in the shares of companies. These shares are listed on the stock exchange. These funds are further sub-divided into three categories: large-cap funds, mid and small cap funds and sector funds.
You invest more funds in the large-cap funds as they comprise of less risk and exist in good business organizations. Mid and small –cap funds are available in small companies that are in the expansion phase. They contain risk element and are subject to rise and fall of markets. The sector funds are comprised of one or more sectors. Another type of equity funds are thematic funds which are invested in a set of sectors such as infrastructure or consumer goods. These funds contain highest amount of risk.
2. Debt funds
You can get fixed and regular income by investing in debt funds. The types of debt funds are: bond funds, and government securities.
The bond funds can be of short-term or long-term duration. The investment of these funds is done in corporate bonds or government securities or both. You must invest in these funds according to the prevailing interest rates. If the duration of the debt fund is longer, then the risk element increases. Hence, you need to check with the duration of your debt instrument.
Government securities are also available in short-term and long-term funds. These funds are safe as they are issued by the government itself. If you expect that the interest rates will fall in future, then you invest in these types of funds. These funds are also volatile in nature and are guaranteed.
3. Liquid/ Ultra-short term funds
Liquid funds are similar to your savings account balance with respect to liquidity. You can even invest for a month’s period. If you want to invest for six months, then you can opt for ultra-short term funds.
4. Gold funds
These are further invested in securities (gold-backed) and gold bars. It is suggested that less than ten percent of your portfolio must contain gold funds.
5. Hybrid funds
As the name suggests, hybrid funds are a combination of equity and debt funds. These are known to be best as these contain the best elements of both the categories of funds. You can go for monthly plans to earn regular and timely income. You can also go for balanced funds.
Conclusively, mutual funds in India are designed taking into consideration the requirements of investors.
Recommended Read :
- Methods to Select the Best Mutual Funds
- What are Mutual Funds?
- Types of Mutual Funds in India
- 5 Types of Popular Mutual Funds in India
- Understanding Mutual Funds Returns?
- Fixed Deposit Vs Mutual Fund
- Real Estate Vs Mutual Fund
- SIP Vs Mutual Fund
- Mutual Fund Investment Strategy
- Mutual Funds in India
- What is Net Asset Value (NAV)?
- Open Ended Mutual Fund Scheme
- Close Ended Mutual Fund Scheme
Generally, 70:30 ratio is maintained in equity:debt to construct a good portfolio for investment. Also, the recent introduction of gold bonds with an interest rate earning of 2.5% is also viable option to diversify your portfolio. Ultra short term bonds should be dealt with carefully since the risk involved is tremendous compared to other bonds though the returns are also equally appealing. wise decisions should be based on the judgement, experience, market trend and expert advice to gain maximum benefit
A wise or a seasoned investor has a mixed portfolio. A mixed portfolio has a small percentage of all the above types and more. Some experts advise against it and some for it. But as usual it is advisable to study the market trend before investing in any type of MF’s.