Most of us invest our money in mutual funds for capital generation or capital preservation. Different varieties of mutual funds offer different things but the ultimate goal of all investments is generating returns. The classification of mutual funds can be done on basis like investment objective, asset class, risk, returns, speciality, structure etc. keeping these factors in mind, following are the mutual fund types that should be on every investor’s list;
Funds which have their stocks invested in equity market or equity shares of companies are called equity funds. Equity funds are managed by a dedicated expert, fund manager who keeps timing the market and makes buying and selling of funds profitable.
Investors can also opt for direct investment in equities but it has its own good share of risks. If your make investments through equity funds, it is cheaper and comparatively safer. Plus it has the benefit od regular dividend.
The only difficult situation can be a reduction in the NAV while markets are bearish as compared to a total downfall in case of direct equities.
Debt funds are funds which make investments in debt instruments like government bonds, company debentures, fixed income assets etc. debt funds are much safer as compared to equity funds but offer fixed returns.
Moreover, debt funds are taxable in nature. The long-term capital gains are taxed at a rate of 20% and short-term capital gains are taxed as per the slab rate applicable to your total income.
- Tax saving funds
Tax savings funds are the ones which are helpful in saving taxes to an investor. Funds like ELSS or Equity Linked Saving Scheme allow up to Rs. 46,800 to be saved as deduction from taxes. Under the section 80C of the Income Tax act, 1961, an investor can save up to Rs. 1.5 lacs as money invested in mutual funds for a given financial year. ELSS funds are majorly invested in the equity market hence it generates appreciable returns with a factor of risk involved due to it’s nature.
- Open ended funds
Open-ended funds are called so because there is no limitation over entry or exit from these funds. The units of these funds are available to investor throughout the year for subscription as well as redemption without any fee or penalty. The calculations of subscription and redemption are done based on the current NAV.
Open-ended funds are managed by fund managers actively. These funds are best suitable for people who wish to keep their funds liquid and also enjoy the benefits of capital market.
These are long-term investment funds which ensure steady returns in the retirement years of life. These funds are generally hybrid i.e. combination of equity and debt funds. The combination works to yield higher returns through equity markets and steadiness through debt markets.
it is up to the investor in what mode he/she wishes to receive the maturity funds, they can be taken as a lump sum corpus or as regular pay out in the form of monthly income or even a combination of both as some lump sum amount at the time of retirement and remaining as regular income.
Of the so many different types of funds available in the market, these 5 funds mark the major saving milestones for an investor and every investor should try these five types at least once.
Start investing, Smart investing!