In plain and uncomplicated words, a mutual fund collects money from investors, accumulates it and invests on their behalf. Consequently, it leads to safety and diversification. It’s always recommended to stick to mutual funds that don’t charge you any commission whether you buy or sell them.
Types and benefits of mutual funds:
Equity mutual funds: Did you know that Equity funds are also known as stock funds? So, equity mutual funds majorly invest in stocks. It’s easier to invest in equity mutual funds because when you give money to fund, it is invested in stocks. However, these funds are always on the slippery ground and depend on the market conditions.
Debt Mutual funds: If you ever plan to invest in debt securities, then, debt mutual funds are the ideal solution which is safer and under lock and key. There are further sub-categories of the assets that fall under Debt mutual funds. These are Overnight funds, liquid funds with a maturity of up to 91 days, ultra-short duration funds, low duration fund, low duration fund, money market funds with a maturity of up to 1 year, short duration funds with a time duration between one year and three years, medium duration funds, medium to long duration funds, long duration funds with a time duration of greater than 7 years, dynamic bonds, corporate bond funds, credit risk funds, banking and PSU funds, gilt funds , gilt funds with a fixed duration of 10 years and finally floater funds.
Hybrid mutual funds: If you are looking to invest in a mix of equity and debt funds, then choosing the hybrid mutual funds is a good option for you. Hybrid funds can further be categorized as balanced funds, monthly income plans, and arbitrage funds. If you are cautious and uncaring, then investing in balanced funds can be the most suitable option for you. Those who expect a regular income from their investment in the form of dividends can go for monthly income plans. Similarly, arbitrage funds will give you an opportunity to buy stocks from one market at a reduced price and selling them in another market at a higher price.
Solution-oriented mutual funds: As the name suggests, these mutual funds aim to provide us with solutions like a retirement plan, children education and so on with a lock-in period of 5 years.
You can always refer to SEBI’s schemes and guides and keep yourself updated with the changes in mutual funds plans.