A mutual fund is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio.
Different types
of Mutual Fund to choose from
A growth fund is a diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. The portfolio mainly consists of companies with above-average growth that reinvest their earnings into expansion, acquisitions, or research and development (R&D).
Debt funds are mutual fund schemes which invest in fixed income generating securities such as Commercial Papers (CP), Certificate of Deposit (CD), Corporate Bonds, T-Bills, government securities and other money market instruments.
Balanced funds, also known as hybrid funds, are a class of mutual funds that contain a bond (debt) component and a stock (equity) component in a specific ratio in a single portfolio. These mutual funds help investors diversify their portfolio by investing in asset classes such as equity and debt.
Liquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days. Assets invested are not tied up for a long time as liquid funds do not have a lock-in period.
Gilt funds are debt funds that invest in government securities. The government bonds used to be issued in golden-edged certificates. The nickname gilt comes from gilded edge certificates. iStock. As per Sebi norms, gilt funds have the mandate to invest at least 80% of their assets in government securities.
Tax saving mutual funds are just like any other mutual funds with an added tax-saving benefit. The special feature of this type of mutual fund is that the investments made in the tax-saving mutual funds are eligible for tax benefits under section 80C of the Indian Income Tax Act.
Index funds are funds that invest in an index. Their main objective is to replicate a stock market index in terms of the portfolio. An index fund has the same stocks and in the same weightage as the stocks listed on the chosen index.
Mutual funds which invest in a particular sector or industry are said to be sector-specific funds. Since the portfolio of such mutual funds consists mainly of investment in one particular type of sector, they offer less amount of diversification and are considered to be risky.