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Mutual funds are basically investment vehicles that comprise the capital of different investors who share a mutual financial goal.
Types of Mutual Funds in India
Mutual funds in India are classified into different categories that supported certain characteristics like asset class, structure, investment objectives, and risk. Here, we’ll assist you to understand intimately the varied categories and therefore the sorts of funds under each category.
Equity funds are the foremost preferred investment options among the bulk of investors as these offer high returns and quick growth. Equity funds make investments mainly in stocks of companies.
Since these funds accompany a hard and fast maturity and rate of interest these are ideal for investors with low risk appetite. Debt funds chiefly invest in low-risk fixed-income instruments like government securities.
Money Market Funds
These funds accompany relatively lower risk and are ideal for brief term investment. Money market funds invest in easily accessible cash and debt instrument securities and offer returns as regular dividends.
Open-ended Mutual Funds
These are the kinds of funds where investors are allowed to trade and exit from the funds at their own convenience. Open-ended mutual funds haven’t any constraints as far because the number of units which will be traded or the period of time cares .
Closed-ended Mutual Funds
In these types of funds the maturity tenure of the scheme is fixed. The unit capital that’s to be invested in closed-ended mutual funds is fixed and thus , it’s impossible to sell quite the predetermined number of units.
In these kinds of funds the investors have to invest for a minimum of 2 years. Interval funds are often bought/exited only at specific intervals as determined by the corporate. These are open for investment for a particular period of your time only.
These are the funds whose tenure can extend to 91 days with a maximum Rs. 10 lakh of investment. Liquid funds also make investments in the money market and debt securities.
These types of funds usually come with a three year lock period. These are Equity-Linked Saving Schemes (ELSS) which mainly invest in equity and equity-related instruments and also offer dual benefits of tax-saving and wealth generation.
Aggressive Growth Funds
These types of funds are susceptible to market volatility, that is why they need the potential to deliver impressive returns. Aggressive Growth funds carry a comparatively high level of risk and are designed to get steep monetary returns.
These are the types of funds that provide great investment options for people who wish to save money for their retirement. These funds offer regular income and are ideal for meeting contingency expenses like a child’s wedding or medical emergencies.
Features of Mutual Funds
Here are some of the key features of mutual funds:
- Smart, practical, and strategic investment instrument.
- Risk mitigation through investments done in a diverse portfolio of securities.
- More liquid than other investment options in deposits, shares, and bonds.
- Consistent in performance over a short, medium to long term period.
- Highly flexible in terms of financial objectives, liquidity, and tenures.
- Ease of trading and transacting the units on all the working days.
- Tax exemption/deduction benefits under Section 80C of the Income Tax Act
Mutual Fund Eligibility
Mutual Funds investments can be done by a variety of investors such as individuals, partnership firms, Qualified Foreign Investors (QFIs), registered Foreign Institutional Investors (FIIs), Persons of Indian Origin (PIOs), Non-Resident Indians (NRIs), cooperative societies, Hindu Undivided Families (HUFs), etc. To invest in mutual funds, applicants are required to be KYC compliant.