· There are three types of mutual funds -
1) Equity Mutual Fund
2) Debt Mutual Fund
3) Liquid Mutual Fund
So now we gonna discuss about them and also about their variation -
1) Equity Mutual Fund :-
Equity mutual funds are those who puts the investors money in equity i.e. shares of company or we can also call it as if we put our money/investment in equity mutual fund then our funds are invested into equity .
2) Debt Mutual Fund :-
Mutual funds which puts their client's money in fixed income securities for example ᐧGoveernment , ᐧBusiness / Company , ᐧFinancioal Institutes needs money as a loan and debt mutual funds give them that money which they collect from the investors, and give them to these institutes , company who requires and earn interest on those loans.
PROS AND CONS :-
ᐧ Debt Mutual Funds :-
1) Debt mutual funds give money in form of loan thus the risk is minimized.
2) In these type of mutual funds returns are assured i.e. usually 7 - 8% and the returns are not dependent on market condition.
3) Volatility is low depends upon interest the mutual funds is charging on given loan usually 7 - 9 % fixed .
ᐧ Equity Mutual Funds :-
1) In equity Fund risk is much higher as compared to debt funds because in this case your money / fund will be invested into shares but generally in long term the risk is minimized .
2) Returns are dependent upon market (NSE/BSE) growth .
Returns can be higher in year a or suddenly can go lower in a year.
3) Volatility is higher than compared to debt mutual funds.
* NOTE :- Every mutual fund charges some percentage of profit, also known expense ratio which is usually 1% -2% so only invest only on those mutual funds which has expense ratio <=2, because in long term it it becomes some reasonable amount .
ᐧ Liquid Mutual Fund :-
Liquid mutual fund are the type of mutual funds that invests in securities with a residual
maturity till 91 days .
It can not be beyond 91 days . In these type of mutual funds returns are usually 7%.In these type of mutual funds tax is paid as short term capital gain .
* You don't have to pay any tax until your income exceeds 2.5 Lac .
· Types of Equity Mutual Fund :-
There are usually three types of equity mutual funds that is
1) Large Cap equity mutual fund
2) Mid Cap equity mutual fund
3) Large Cap equity mutual fund
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1) Large Cap equity mutual fund :-
Mutual funds which invests its most of the funds in large cap stocks (top 100 stocks i.e. nifty 100) are known as large cap equity mutual fund. In these types of mutual funds risk is not as that much but returns are quite satisfying .
2) Mid Cap equity mutual fund :-
Mutual funds which invests of their funds in mid cap stocks are known as mid cap equity mutual funds . These have higher risk as compared to large cap equity mutual funds and can give higher returns than large cap equity mutual fund.
3) Small Cap equity mutual fund :-
Mutual funds which invests their most of the funds un small cap (Companies rank from 250 and more on the basis of market capitalization ) are known as small cap equity mutual funds.
· Market Capitalization = No. of shares * current traded price
These are some basics but there are also more types in equity mutual funds given as below :-
4) Large and Mid Cap mutual funds :-
Mutual funds which invests their funds in both (equally distributes) in large cap stocks as well as in mid cap stocks are known as large and mid cap mutual funds.
These types of mutual funds usually used for getting higher returns by having low risk.
5) Multi Cap Mutual Fund :-
Mutual Funds which distributes their client's fund in small / mid / large cap stocks equally so that they can generate more returns with having lower risk than Large and Mid cap mutual fund .
If an investor want to shift his money to say mid to large cap thus he has to pay exit load but with these type of mutual fund he don't have to do so he can change his investments from mid cap stocks to large cap stocks as he/she wishes without having any type of exit load.
6) Dividend Yield equity funds :-
These type of mutual fund puts their clients money in those stocks which pay higher dividend and also gain profit from capital gain from that of the stocks .
7) Value equity mutual funds :-
These value equity mutual funds puts their investment/funds on those companies which under performing right now but has higher future potential.
8) Growth equity mutual funds :-
Growth equity funds invests their funds or investments in those companies where there is good potential in that company and company has shown good corporate earnings . Usually these types of company does not pay any dividend if they do so then dividend yield is so small.
8) Passive equity funds :-
In passive equity funds there is no fund manager, the passive equity fund mimics particular index or market e.g. Sensex , Nifty Fifty
As there is growth in Sensex of nifty fifty , their funds also grow
For Example :-
ETF (exchange traded funds ) etc.
· Where To Invest ?
It depends upon your risk appetite and its quite prudent if your risk appetite in your 20s in higher .
So better option is to invest by yourself with your own knowledge
or if you can't do so put your money in equity mutual funds.
If your risk appetite is low then go for debt mutual funds debt mutual funds usually gives more returns as compared to to bank F.Ds.
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So that's all about mutual funds check your risk appetite and then look for a better option of yourself .
Do share this with all your friends who people who need to know about this or to whom who was seeking for a mutual funds so that they can't regret after investing in one .
Thank You
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