Mutual fund schemes offer several advantages compared to investing directly. Mutual funds are a vehicle to mobilise money from investors, to invest in different markets and securities in line with the investment objectives agreed upon between the mutual fund and investors.
There are few mutual fund schemes that an investor can choose based on their respective investment objective.
Growth funds: Under the growth fund schemes, money is invested primarily in equity stocks with the purpose of providing capital appreciation. Growth funds are considered to be relatively risky funds. They are ideal for investors with a long-term investment timeline. In any case, it should be remembered that all investments should be undertaken with a focus on the long term, so as to be able to grow optimally.
Income funds: Such funds invest primarily in fixed-income instruments such as bonds or debentures with the purpose of providing capital protection as well as regular income to investors.
Liquid funds: Under these schemes, money is invested primarily in short-term or quite short-term instruments like treasury bills (T-bills), commercial papers (CPs), and money market funds, among others, with the purpose of providing liquidity. They are considered to be low on risk provide moderate returns, and are ideal for investors with short-term investment timelines.
Tax-saving funds: These are also called equity-linked savings schemes (ELSS) and they invest mainly in equity shares. Their risk-return trade-off is high and gains are subject to tax exemption.
Capital protection funds: These funds build diversity to minimise risks. It does so by investing in fixed-income instruments and in equity markets, with the aim to ensure the protection of the principal that has been invested.
Fixed maturity funds: Such funds invest in debt and money market instruments. For beginners, it is a mutual fund scheme with a maturity date and the fund manager invests in various bonds or other fixed-income instruments that mature before the maturity of the scheme.
Pension funds: These funds typically have a long-term goal, and that goal is to provide regular returns to the investor upon their retirement. A pension fund typically invests in a mix of equity and debt.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.