It’s no secret that Mutual Funds(MF) extend a host of benefits by providing exceptional returns, instilling financial discipline and enabling tax savings. Investing in them is a great way to create a substantial financial corpus for yourself.
If you plan to start your MF portfolio, it’s critical to learn their types first.
Here are the 7 most popular ones:
Fund managers handling this category of MFs invest your money in shares and stocks. The primary aim here is rapid financial growth. To achieve this, your financial expert tries to invest in different companies from diverse sectors. Typically, these funds offer higher returns as compared to debt-based funds and term deposits.
As the name suggests, these funds are more balanced than equity MFs. They invest in a balanced mix of equities and fixed-income securities. The primary goal here is to dial up the returns against the risks involved. So, if you are looking for some safety along with modest capital appreciation, balanced funds are for you.
Fixed income funds generate returns by investing in government bonds and investment-grade corporate bonds. These funds pay a fixed rate of return, which is a parallel you can draw with a fixed deposit. Fixed income MFs have funds pouring in regularly, usually through the interest earned.
Additional Read: What Are the Average Returns on Mutual Funds?
These funds primarily invest in short-term debt securities, such as Treasury bills (T-bills), government bonds, Certificates of Deposit (CD), Commercial Paper (CP) and a few others. Essentially, these funds invest in the money market, aim for good returns while keeping the Net Asset Value or NAV fluctuations limited.
Short for Equity Linked Savings Schemes, ELSS predominantly invests funds in equity-related instruments. These mutual funds help you save tax and are also called tax-saving funds. Wondering how much should I invest in ELSS? You can invest and claim deduction on a maximum of Rs. 1.5 lakhs under Section 80C of the Income Tax Act.
These funds offer a mixed bag of all types of MFs. Think of fund of funds as a pool of various kinds of MFs available out there. You can find varying degrees of risk in funds of fund. The mixed bag of MFs procured will depend on your risk appetite.
An indirect way to invest in MFs is through systematic investment plans. Are you wondering how much should I invest in SIP per month? Here, you can periodically deposit a small amount of money – a few thousand, rather than a lump sum and enjoy significant returns.
Additional Read: What kinds of investors should opt for mutual funds?
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