Do you want to skim the cream from the market? Obviously, yes. When the timing is right and the market is good, it would be the right time to invest in mutual fund market. Check out your investment horizon, risk taking appetite and your financial goals before jumping into the mutual fund market.
As there are various mutual fund players asking you to employ your money, giving you the best deal for your returns. Don’t get carried away by the false promises from scrupulous relationship managers, instead do your own homework before investing. Mutual Funds are not only about equity markets but there are various funds floating in the market where your investment goals can comfortably swim in for some years for the sake of gaining effective returns.
Let’s check out the classification of Mutual fund investments offered by leading Asset Management Companies in India :
Open-Ended : Investors in this scheme are allowed to buy and sell the units at any time period at the ongoing Net Asset Value(NAV). These funds do not have the restriction on the amount of shares issued by the fund. The units for sale are offered without any duration for redemption. The fund will continue issuing shares during high demand conditions, irrespective of the number of investors engaged in this fund. The main advantage of the open-ended scheme is the liquidity that these funds deliver to its investors.
Debt/Income : A major part of the investible funds gets invested in these debt instruments like debentures, government securities and debt securities. Regardless of the low capital appreciation, this is relatively low-risk return investment avenue which is appropriate for investors looking for a regular flow of income.
Money market/Liquid funds : These funds invest in short-term debt securities which offer reasonable returns to the investors. These are appropriate for those who wish to park away their excess money in short-term securities instead of waiting for some better options.
Equity/Growth funds: Equities are a favourable investment preference amongst retail investors. Although it reflects a high-risk in the short-term but investors can consider for capital growth in the long-run. If you are at the start of your earnings stage and aim for long-term benefits, growth schemes could be your desired investment option.
The following schemes are categorized under Equity/Growth plans :
Index Scheme : Index scheme is a widely considered concept in the west. This scheme works on a passive investment principle where the investments track in close proportion to the movement of benchmark indices like Nifty, Sensex etc.
Sectoral Scheme: These funds invest in specific sectors like IT, infrastructure, pharmaceuticals, etc. or capital market segments like large caps, mid caps, etc. This scheme offers relatively high-risk return opportunities within the equity framework.
Tax-Saving : This scheme provides tax advantages to the investors. These funds are eligible to income tax exemptions under Section-80 C of the Income Tax Act, 1961 with a 3-year lock-in period. The taxes are saved under Equity Linked Savings Scheme(ELSS) which provide long-term growth opportunities to investors.
Balanced/Hybrid: These funds allow the investors to seek growth and income at periodic intervals. Funds are invested in a mixed proportion of both equities and fixed-income instruments; the proportion is determined in advance and gets disclosed in the scheme related offer document. These are appropriate for the cautiously aggressive investors.
Closed-Ended – Investors looking to park away their funds for a fixed maturity period can opt for closed-ended funds which give opportunities to invest during the initial launch period known as the NFO(New Fund Offer) period. As opposed to open-ended funds, new shares/units are not created by managers in order to meet out the demand from investors but the shares can only be bought and sold on the stock exchange.
Capital Protection –The primary aim of this scheme is to get the protection of the principal amount while aiming to get equitable returns. These funds invest in high-quality fixed income instruments with a minimal exposure to equities with a prescribed maturity period.
Fixed Maturity Plans (FMPs) – These funds invest in a pre-specified maturity period. These schemes usually comprise of debt securities which have a maturity period comparative to the maturity of the scheme, which as a result, earn through the interest component(known as coupons) of the securities in the portfolio. FMPs are generally passive managed i.e. no engagement of active trading of debt securities in the portfolio. The expenses are applicable on the scheme, are hence, relatively lower than actively managed schemes.
Interval – Interval schemes invest in a mix of open and closed-ended schemes wherein it allows the investors for trading the units at pre-defined intervals.