Common Mutual Find Types
Mutual funds have become an interesting option for investment, especially for beginners. They are well-diversified meaning your investment is evenly divided in different stocks, tax-efficient meaning you have the option for tax saving along making some profit and low –cost i.e. it can be started and maintained by having a simple internet connection. In a mutual fund investor, you can even ask your fund manager to manage your investment and it is his job to pick the stocks which will yield a better return.
Kinds of mutual funds
- Money market funds
These are considered safer investment among mutual funds but they yield less profit. They normally invest in government bonds, treasury bills, banker’s acceptances, certificate of deposit and another lessor short span deposit income or security.
- Fixed income funds
As the name indicates, these funds are those which yield certain permanent income. These funds are preferred when a fixed and regular return on investment is required and they are achieved through the regular interest that the fund earns. Some examples where the fund can get a fixed rate of return are government bonds, investment corporate bonds, as well as large returns corporate bonds but later is riskier than former.
- Equity funds
Funds of this nature invest in stocks and therefore there is a higher risk that you could lose money. On the other hand, equity investments yield quicker money compared to other forms of mutual fund and there is also the advantage of choosing from different types of equity fund. Some of the options are growth stocks, income funds, value stocks, large-cap, mid-cap, small-cap stocks.
- Balanced funds
These types of fund aim to balance higher returns against the risk of losing money. They achieve that by investing in a mixed investment plan which consists of both equity and termly investments. These funds divide the yield amongst the different type of investment and can be classified as aggressive funds if it has more equities and fewer bonds or conservative funds if it has fewer equities than bonds. Balanced funds are riskier compared to the fixed investments but a bit risky than equity funds.
- Index funds
The value of index fund depends on the market of a certain specific index such as BSE/NSE. Returns of these funds fluctuate according to the value of the index. The only advantage is that they have lower costs because the fund manager doesn’t need to do much work or research to make an investment decision.
- Specialty funds
In this, the funds are invested in some special or particular type of commodity like the real estate, military weapons, tobacco etc.
Before investing in mutual fund one should understand the fund’s investment goals and level of risk associated. A financial advisor may help to decide which type of mutual fund is best that meet your needs. You also should do a full review of your decision.