A mutual fund is a type of financial structure made up by pooling money which is collected from many investors so that it can be invested in securities like stocks, bonds, money market instruments, and other assets. There are different types of mutual funds that are operated by professional money handlers, who handle fund’s assets and try to produce capital or income for the person, investing in that fund. A mutual fund needs a structured portfolio that is maintained to match the objective of investment. There are many portfolio management companies in the market that can maintain your portfolio for a nominal fee. Here we will have a look at different types of mutual funds that you can invest in.
Mutual Funds Can Be Broadly Classified Into Three Types
1. Open-ended funds
2. Close-ended funds
3. Interval funds.
4. Open-ended funds
These are the types of funds in where you are not restricted to any fixed maturity date or lock-in period. You can invest in them at any point of time and withdraw your capital whenever you want.
Open-ended funds are further divided into three subcategories
4.1 Debt/Income Funds
4.2 Money Market/Liquid Funds
4.3 Equity Funds
Debt/Income Funds : Type Of Mutual Fund
Often considered as the safest funds for investment income or debt funds. These are a low risk and low return investment and it is ideal if you want to take low risks and gain a regular income.
Money Market/Liquid Funds
Liquid funds invest your money in a pooled short term financial structure. These are ideal funds if you have surplus money and you are ready to park it for some time. It provides you a better gain than fixed deposits.
Equity Funds
These are considered as the highest yielding funds. But they are also associated with high risks as the accumulated corpus is invested inequities. This is further classified into three other schemes.
A. Index schemes
B. Sectoral schemes
C. Tax saving
Close-ended Funds
Close-ended mutual funds are time-restricted, they have a fixed maturity date and a lock-in period. This means you can only invest in them when they are launched or in a new fund offer (NFO) period. It is further classified into two types
A. Capital protection
B. Fixed maturity plans (FMPs)
A. Capital protection: As the name suggests it fundamentally safeguards your capital investment or your principle amount. Therefore it invests the major part of your corpus in high rated fixed income securities and a very nominal share of the corpus is being invested into equities where the risk factor is high. Thus they provide a very reasonable return on your investment.
B. Fixed maturity plans (FMPs): It is evident by the name that, these are the schemes with a fixed maturity time and your corpus is majorly invested in debt structures that matures within the fund maturity period. These types of plans earn a fixed interest. Since FMPs are managed passively, the expense of managing them is much lower when compared to an actively managed scheme.
Interval Funds
These are the funds that are considered as the mixture of open and closed-ended funds that allow the investor to invest at pre-defined intervals. These type of mutual funds offer the benefits of both the funds that mean an investor has the flexibility of an open-ended fund and higher returns of a close-ended fund.
Suggest Read: Check These 4 Things to Buy the Best Investment Plan
Based upon how much risk you can afford, you can choose how long you want to stay invested and the type of returns that you can expect, you can choose from several types of mutual funds available in the market. However, it is recommended you should go for the funds that deliver stability, income, and growth for getting the maximum benefit.
So these were some different types of mutual funds available, you can invest in any of these that suit your needs and requirements. However, it is advised that for a greater gain you should start early if you are investing in mutual funds considering that you are getting in it for the long run.