Mutual funds are professionally-managed investment schemes which are usually run by an asset management company OR AMC that brings together a group of people and invests their money in stocks, bonds and other securities. All the mutual funds in India are registered under SEBI. SEBI has created strict regulation to protect the interests of the investor. In the advantage of investing through a mutual fund is that it gives small investors access to professionally-managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital. Mutual fund represents a pool of funds that are professionally managed by expert Mutual Fund managers. They keep a record of the performance and growth of these funds and make required alterations so that the funds perform well and the investors receive the best possible returns. Mutual Funds are controlled by an AMC (Asset Management Company) that collects funds from a group of investors and invest these funds in bonds, stocks, and securities.
Different types of Mutual Funds:
- Debt funds: A debt fund is a type of Mutual Fund that invests in fixed-income securities. In this fund, a people’s money will be invested in short-term bonds, long-term bonds, securitized funds, floating rate debt, and money market instruments.
- Equity funds: An equity fund is a type of Mutual Fund that invests money primarily in stocks. There are both actively or passively managed funds.
- Equity linked savings schemes: This is an equity Mutual Fund that is close-funded in nature. This helps people save taxes and also helps to grow their wealth. A person can enjoy tax deductions as per the Income Tax Act under Section 80C.
- Diversified funds: Type of Mutual Fund allows investing people’s money in diverse sectors or industries. A person can spread their investments across various industries in the market.
- Gilt funds: This type of funds allocate money to securities that are offered by the state and central governments. These funds come without any default risk.
- Index funds: In this category of Mutual Funds, people’s money will be invested according to how a stock market index functions. The NAV for these funds will closely follow the rise or fall in the index.
- Liquid Mutual Funds: In this type of Mutual Funds are investment plans that will allocate funds primarily to money market instruments such as treasury bills, term deposits, certificate of deposits, commercial papers, etc. These funds come with a lower maturity period.
- Debt-oriented hybrid funds: In this category of Mutual Funds, people’s money will be primarily invested in debt and the remaining part will be invested in equity. It is a blend of both debt and equity investment.
- Arbitrage funds: These funds are treated as equity plans for taxation purposes. These funds invest both in the cash market and the derivatives market.
- Dynamic bond funds: In people’s money will be invested in debt and money-market instruments. The maturity of the fund will vary according to the investments that it makes.