Many types of Mutual Fund schemes exist to accommodate the various needs of different people. There are generally three types of mutual funds.

Equity or Growth Funds

• They invest mostly in equity, i.e. Shares of companies
• The main goal is wealth creation or capital appraisal.
• They are able to yield higher returns and are suitable for long-term investment.
• These are just some examples.
  • Large capital funds that invests primarily in established businesses
  • ” Mid Cap Funds” that invest in mid-sized companies. funds that invest in mid-sized businesses.
  • Small Cap funds invest in small-sized companies
  • “Multi Cap” funds that invest in an assortment of small, mid, and large businesses of various sizes.
  • “Sector” funds which invest in businesses which are associated with one type of business. For e.g. Technology funds invest in technology businesses
  • Fonds which are “thematic” and are based on a single theme. Think of the following: For instance, infrastructure funds invest in companies that can benefit from the expansion of the infrastructure sector
  • Funds for Tax-Saving

Income or Bond or Fixed Income Funds

• They are invested in Fixed Income Securities like Government Securities or Bonds or Commercial Papers and Debentures or Bank Certificates of Deposits and Money Market Instruments like Treasury Bills Commercial Papers etc.
• They are more secure and suitable for the generation of income..
• Examples could be Examples would be Funds and Short-Term floating rate Dynamic Bond, Gilt Funds, etc.

Hybrid Funds

• These funds invest in both Equities as well as Fixed Income. This gives you the most effective of both, Growth Potential as well as income generation.
• Examples include Aggressive Balanced Funds and conservative Balanced Funds along with Pension Plans and Child Plans Monthly Income Plans as well as other plans.

What are the ways mutual funds can help reduce risk?

Risks appear in many types. For example, if you have a stake in a company, there’s an opportunity for a Price Risk, a Market Risk or a company Specific Risk. Any of these risk factors or any combination of them can cause a share to decline or even to crash. You van visit Best mutual funds.

But, in the case of a Mutual Fund, a typical portfolio is comprised of a number of securities, thereby offering ” diversification“. Diversification is one of the biggest benefits to investing in the Mutual Fund. It makes sure that a dip in value of some or even a few security does not affect the portfolio’s performance too much.

Another risk worth keeping in mind is Liquidity Risk. What is liquidity? It’s the ease of converting funds into cash. Imagine an investor who has an investment dating back 10 years and is in need of cash within the next 3 years. This can be a typical liquidity issue. At this stage her primary concern is cash access, not returns. Mutual Funds by regulation and structure, provide huge liquidity. The portfolios are designed to give an investor the ease of investment and the ability to redeem.

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