What is Mutual Funds ?
We all invest some of our income for future expenses or any contingency requirement. There may be many ways to invest, some of which do not have risks at all, but the future returns or returns are also low. Saving bank accounts, RD, FD etc. are examples of this. At the same time, some methods are more risky and the returns are also high.
Investment in the stock market is an example of this. In addition, some other modes of investment include investment in gold, real estate, investment in a financial instrument etc.
"In addition to all this, another investment option is mutual funds", a fund created by a company in which people deposit capital to the capacity of them and these companies invest that capital in various sectors mentioned above such as stock market, bonds, debentures etc. Some of the returns from the investment are deducted by such companies for their management while the rest are distributed to investors. Investing companies have professionals with special experience in the economy and the market, so investing through these companies is less risky for any investor.
👉Types of Mutual Funds
Mutual fund companies are mainly classified into three types based on the investmentthey make.
1.equity fund
2.Debt Fund
3.Hybrid Funds
4.Other Funds
1.EQUITY FUND
There are funds that invest investor capital in the stock market called equity funds. This includes the following different types of mutual funds.
👉Small Cap Fund
These mutual funds invest in small cap companies (companies with a market capital of less than Rs 5,000 crore). Such companies are in the early stages of their development, so there are both higher returns and risks.
👉Mid Cap Fund
These funds invest in mid-cap companies (companies with market capital between Rs 5,000 crore and Rs 1 lakh crore). In such companies, the risk is lower than that of small cap companies.
👉Large cap Fund
These funds invest in large cap companies (companies with market capital of more than Rs 1 lakh crore). Large CAP companies are fully developed, financially highly stable and have giants from their respective regions. Both returns and risks are reduced when invested in them. Companies like Reliance, TCS, HDFC, L&T are examples of this category.
👉Sector Fund
Funds that invest in a particular sector such as pharma sector, media sector, FMCG sector, IT sector etc. are called sector mutual funds.
👉Diversified Fund
As the name suggests, these funds invest in all types of companies such as Small Cap, Mid Cap and Large Cap.
👉Dividend Fund
Companies distribute part of their profits to their shareholders called dividends or dividends. Although it is entirely up to the board of directors of the company to pay or not to pay dividends, not all companies distribute dividends among investors. Dividend funds invest in companies whose financial position is strong and stable and which also pay dividends to their shareholders.
👉Equity Linked Savings Scheme (ELSS)
These funds also invest mainly in equity. Investing in such funds is the best option to save income tax. By investing in it, investors can get exemption from tax on income up to Rs 1.5 lakh. It is a long-term fund so the amount invested here can be withdrawn only after three years.
👉Thematic Funds
Funds that invest in companies based on a particular subject are called thematic funds. Although these sectors seem to be similar to funds, their scope is much larger than that of sector funds. Thematic fund can have more than one sector. For example, funds investing on the subject of tourism can invest in more than one sector like hotels, aviation, etc. Since investment here is made based on a particular subject, the risk in this fund is also high.
2.DEBT FUND
By issuing debt instruments like bonds, treasury bills, debentures, etc., governments and companies raise capital for a short period of time or long term and in turn pay interest to investors for a certain period of time. Mutual funds investing in debt devices are called debt funds. There is less risk than equity funds but returns are also lower than equity. There are the following different types.
👉Gilt Fund
These mutual funds invest only in government securities such as government bonds or treasury bills.
👉Junk Bond
As the name suggests, junk bond funds invest in financial instruments of companies that have low credibility and are less economically stable. These companies pay more interest than others, but such companies are also more likely to default.
👉Fixed Maturity
These mutual funds invest in financial instruments that are issued for a certain period of time. One of the main examples of this is trade bonds.
👉Liquid Fund
These mutual funds invest in financial instruments issued for a short period of time (maximum of 91 days) such as treasury bills etc. The return from here is higher than the interest on the saving account. In addition, the amount invested here can be withdrawn at any time when required.
3.HYBRID FUND
These mutual funds invest in both debt and equity. This type is divided into three additional categories based on the ratio of investment in equity and debt.
Monthly Income Plans: It invests 70- 80% of the total funds in debt (government and corporate bonds) and the rest in equity (in the stock market). Investment here is safer than others.
Balanced Fund: Contrary to its name, most of the fund is invested in about 65 to 85% of the equity while the rest is invested in debt.
Arbitrage Mutual Funds: These funds buy stocks from one market and sell them in another market and make a profit equal to the difference between the two. They invest most of their share in equity.
4.OTHER FUND
It covers some other funds. For example, this category includes index funds that invest only in an index of the stock market such as nifty or sensex, Solution Oriented Fund which are created after a certain period of time keeping in mind the expenses of a particular task such as education, marriage, etc.
👉How to Invest?
You can invest in mutual funds in lump sum (Lump Sum) or installments (SIP). Mutual funds are also purchased in the unit like the share of a company. But while it is mandatory to buy at least one share of a company in the stock market, a unit in mutual funds can also be purchased partially. The price of a unit of mutual fund can be ascertained from its Net Asset Value or NAV.
There are currently several mobile applications available to invest in mutual funds besides almost all banks and demat account providers also facilitate investment in mutual funds. For example, PayTm, PhonePe, Groww, Tata Capital, Jerrodha Coin, etc. are the main ones.
Summery
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Hi , This is Pramod Choudhary from Nagaur Rajasthan India. I an student and I would like to share my positive thinking with everyone that's my passion . Thank you
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