Our previous article on “Different Types of Mutual Funds in India” briefed about the existence of various Mutual Funds in India based on structure. This article will however, serve as a source of information to you about the type of Mutual Funds that can be distinguished in accordance to their Asset Class.
There are four major types of Mutual Funds as when distinguished on the basis of Asset Class:-
Equity Funds: Also known as Stock Funds, these funds tend to invest the money accumulated from investors in equity stocks/shares of various companies. These are considered to be high-risk funds as the probability of profit in these completely depends upon the market performance of relative companies. Nonetheless, these funds also tend to generate high returns. Equity funds can include specialty funds like FMCG (Fast Moving Consumer Goods), Infrastructure, Banking and so on. They are primarily categorized by the investment style, reflected in the fund’s stock holding and by their geometric origin (broad market, regional or single-country funds).
Debt Funds: These are the funds that tend to invest the money accumulated from investors in debt instruments like company debentures, government bonds and other similar fixed income assets. These type of Mutual Funds are considered to be safe investments as the Return On Investment depends on secured and fixed income assets. However, they only provide fixed returns that is at times quite less as compared to the Equity Funds. Furthermore, the investor is liable to pay the tax on these funds the earning from the investment gets more than 10,000 INR.
Money Market Funds: These are open ended mutual funds that tend to invest the money accumulated from investors in in short term debt securities or liquid financial instruments like T-Bills, Commercial Papers and so on. These type of Mutual Funds are considered apt, specifically for those who seek to park surplus funds for immediate but moderate returns. Money Market Funds are also referred to as Cash Market Funds as they come hand in hand with the risks in terms of interest, reinvestment and credit. Nevertheless, these funds are considered widely (though not mandatorily accurately) as being as safe as the bank deposits with a higher yield though.
Balanced or Hybrid Funds: These are funds that tend to invest the money accumulated from investors in a mix of asset classes. The asset allocation, in these type of Mutual Funds can vary depending upon the requirement. Some of these funds prefer higher proportions of the investment in equity than in debt while others prefer it other way round. Nonetheless, risk and returns are both balanced out these type of Mutual Funds. Buying these type of Mutual Funds ensure that your investment stays safe while at the same time yielding you a higher profit as compared to Debt or Money market Funds.
Stay tuned for our next article as we lay light on other diversification of Mutual Fund Investments in India.