{"id":12112,"date":"2020-10-19T07:07:03","date_gmt":"2020-10-19T07:07:03","guid":{"rendered":"\/blog\/?p=12112"},"modified":"2025-04-11T06:08:33","modified_gmt":"2025-04-11T06:08:33","slug":"what-kinds-of-investors-should-opt-for-mutual-funds","status":"publish","type":"post","link":"https:\/\/www.tatacapitalmoneyfy.com\/blog\/mutual-funds\/what-kinds-of-investors-should-opt-for-mutual-funds\/","title":{"rendered":"What kinds of investors should opt for mutual funds?"},"content":{"rendered":"\n

Introduction:<\/strong>–<\/h2>\n\n\n\n

Many are looking for\ninvestment during these troubling economic times. Investments that can help\nsecure wealth in the future, with an adequate risk-return balance. Mutual funds\nhave always been a popular investment vehicle, particularly for retail investors\nwith limited sums of investable money. \nBut what exactly is a mutual fund? <\/p>\n\n\n\n

Mutual funds are essentially\nfunds put together by collecting money from a large pool of investors with\nrelatively common investment goals. These are then handled by a fund manager\nwith rich professional and personal experience in wealth management and\ninvesting. Their job is to assess the investment options available to the fund\nand decide which securities, be it equity, derivatives, fixed income,\ncommodities etc. should go into the Fund\u2019s investment portfolio. <\/p>\n\n\n\n

Depending on the returns of\nthe underlying securities held as part of the fund\u2019s assets, An investor in a\nmutual fund would receive a return in proportion to their investment in the\nfund, through both dividends paid by the mutual funds and an appreciation in\nthe share price of the Mutual funds based on the portfolio\u2019s performance. <\/p>\n\n\n\n

Additional\nRead:<\/strong> <\/strong>Why are SIPs an Ideal Choice\nfor the First-time Investor?<\/a><\/p>\n\n\n\n

Mutual funds come in various\ntypes, depending on the underlying asset base. <\/p>\n\n\n\n

Broad Types of mutual funds<\/strong><\/h2>\n\n\n\n

1. Equity Mutual Funds<\/h3>\n\n\n\n

Equity funds are\nessentially invested in corporate equity across market capitalization. If at\nleast 65% of a mutual fund is invested in the same, then it falls under this\ncategory. Equity funds invest across the market cap spectrum.\nThese have the highest potential returns though they also come with higher risk\nas they are subject to the market fluctuations. Equity funds can also have a\nleaning towards certain market-caps. Naturally, the lower the market-cap focus,\nthe greater the risk, but also, the greater the potential returns. <\/p>\n\n\n\n

2. Debt Mutual Funds<\/h3>\n\n\n\n

These tend to\ninvest predominantly in debt and Fixed-income securities such as government and\ncorporate bonds, deposit certificates and other highly-rated securities. These\nare ideal investment options for those that are averse to risk since debt funds\nare not subject to the kind of market volatility seen in the stock market\nthough funds holding long-term bonds are at risk of decreasing bond yields due\nto rising interest rates.  <\/p>\n\n\n\n

Additional\nRead:<\/strong> <\/strong>Advantages of Having Debt\nMutual Funds in Your Portfolio<\/a><\/p>\n\n\n\n

3. Balanced or hybrid funds<\/h3>\n\n\n\n

These are a cross\nbetween equity funds and debt funds. Hybrid funds allow for a balance between\nthe risk-return ratio by diversifying a portfolio. <\/p>\n\n\n\n

Additionally,\nMutual Funds also come in two dominant structures. Open-ended and Closed-ended\nMutual Funds. Open-ended Mutual funds. Amongst other things, the crucial\ndifference between the two lie in the method of investing. <\/p>\n\n\n\n

Open-ended Mutual funds have to be subscribed to or redeemed directly through the Asset Management Company<\/a>, whereas Closed-ended funds stop issuing shares post the Initial Public Offering, upon which all shares trade on the secondary market (the stock market). <\/p>\n\n\n\n

Who should invest in mutual funds?<\/strong><\/h2>\n\n\n\n

Mutual funds are good investment options for anyone who wants to achieve a financial goal, be it in the short or long-term. Those looking for short-term gains could invest in Funds holding high-yielding short-term debt instruments, whereas those looking to play the long game, and with more risk appetite could invest in Equity Funds, with a blend of Large Cap<\/a>, Mid Cap<\/a> and Small cap<\/a> companies. However, before investing in a mutual fund, an investor should assess their risk appetite, investment horizon and objectives and take stock of the variety of mutual funds available. <\/p>\n\n\n\n

Broad Types of Investors that invest in Mutual funds:<\/strong><\/h2>\n\n\n\n

1. Pre-Investor<\/h3>\n\n\n\n

A pre-investor is\nsomeone who has not invested before. They tend to have low financial awareness\nand little information about where to invest and how to start saving. Investing\nin an appropriate Mutual Fund is often their first step in gaining greater financial\nsecurity, as the selection process helps them better understand their personal\nfinancial goals and the investment options available in the market. <\/p>\n\n\n\n

2. Passive Investor<\/h3>\n\n\n\n

Passive investors\nare usually looking to invest for long-term financial security.  They tend to employ basic rules of financial\nplanning through goals such as a home, retirement plans, Investment and Savings\nquotas etc. This is a good method for those with hectic jobs, growing children,\nor long-term financial goals. You can even opt for other experts to plan for\nyou such as money managers or financial planners. <\/p>\n\n\n\n

Passive Investing\ncan also take the form of investing in Passively managed Funds, which invest in\na broad portfolio of securities and let market forces play out as they will. <\/p>\n\n\n\n

Though that seems\nrisky, if the right securities are selected, passively managed funds can often\noutperform Actively managed funds, as those funds are finding it progressively\nharder to achieve alpha, or returns exceeding the prevailing market return. <\/p>\n\n\n\n

3. Active Investor<\/h3>\n\n\n\n

An active investor looks at their wealth like they would a business.\nThey create a plan to follow in order to take advantage of any arbitrage opportunities\nin the market to get high returns and are actively tracking existing\ninvestments and potential investments to try and generate alpha or high\nreturns. There are many mutual funds that are actively managed, to cater to\ninvestors looking for that. <\/p>\n\n\n\n

\"Types<\/figure>\n\n\n\n

Conclusion<\/strong><\/h2>\n\n\n\n

No matter the kind of investor you are, Mutual Funds<\/a> can be a great addition to your personal investment portfolio as they give you exposure to a wide range of securities. If you\u2019re looking to invest, the Moneyfy’s mutual fund app<\/a> by Tata Capital can help you create an investment strategy suited to your financial goals. By helping you scan Mutual funds as per your specifications, the Moneyfy app lets you quickly compare investment options, secure loans and even obtain insurance for financial security. <\/p>\n\n\n\n

Download Moneyfy App<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

Many are looking for investment during these troubling economic times. Investments that can help secure wealth in the future. <\/p>\n

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