Basically, there are three categories of Mutual Funds available in India – Equity Fund, Fixed Income Fund and Money Market Fund. There are many other categories but they are more or less variants of these three categories -
i) Equity Funds: This is the largest category of Mutual funds. The money collected through this kind of schemes is invested into direct equities in the secondary market. The objective of this kind of fund is long term growth.
iii) Money Market Funds: These funds are also known as Liquid funds. These are the safest among all the categories. Although the returns are less but still the capital is protected. These are also known as the alternative to your bank account but the return generated is almost double of what you get in savings account.
Advantage of Investing in Mutual Funds:
Equity Mutual funds are considered as the alternative to direct equity. With limited knowledge, time and money people find mutual funds a popular investment vehicle for their savings. Let’s look at few points which are beneficial for any investor:
Liquidity – Mutual funds are the most easy to trade. It is very easy to get in and get out which makes it more attractive. Many people keep their savings a/c money into liquid funds as the returns are higher and easy availability of money. In simple words, one can sell mutual funds in a short period of time.
Diversification – A famous quote about investing ‘Never put all your eggs in one basket’ really applies when one invests in mutual funds. Diversification means mixing of different investment styles. It helps in lowering the risk by spreading the money across different options available.
Professional Management: A common person finds it difficult to keep a track of the stocks. It requires research and time to pick the best of the stocks so that the desired return is generated. Mutual fund schemes are managed by professional fund managers who are experts in the field of stock picking. They research and analyze different sectors and then invest the money to achieve the objective of the scheme.
How to Select the Fund which is Right for You?
Every fund has its own strategy of investing. For example, some only invest in blue chip stocks while others invest in corporate and government bonds. One should always invest in those mutual funds that serve the purpose of investing. Before investing one should identify the goals and need of investment. Once the goal is clear, then it would be easy to pick the right kind of mutual fund scheme.
Mutual funds are considered to be the best investment vehicle for the first time investors as well as for the established one. The advantage of this product makes it more attractive to look out for. If one is looking out for a professionally managed fund then it is the one stop solution for you. Also one can seek the help of his/her advisor to choose the right scheme to invest in.
This article was originally published on CouponDunia.
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