Understanding Mutual Funds: Types of Mutual Funds
Mutual funds offer different types of investment solutions to suit every investor's needs and risk appetites.
Wizely has partnered with ICICI Prudential Mutual Fund to bring to you a video series on 'Understanding Mutual Funds'. This series will answer all your questions on mutual funds and help you make well-informed investments decisions.
In this video, we will aim to understand the different types of mutual funds that you can invest in.
Types of Mutual Funds
Mutual funds can be broadly classified under two categories:
- Based on the scheme structure
- Based on the asset class in which the scheme invests
Based on the Scheme Structure
There are two types of schemes based on structure :
- Open Ended Schemes are open for investments on an ongoing basis i.e. they can be bought or sold continuously.
- Close Ended Schemes have a lock in period which may vary from one to five years depending on the objective of the scheme.
Based on Asset Class
Based on asset class, mutual funds can be sub-categorised into various types of schemes which can be either open ended or close ended.
Equity Schemes are suitable for long-term investments. They aim to grow your money by investing in stocks and shares of companies listed on the stock markets.
While some schemes may focus on a particular sector, others may diversify across various industries or allow you to invest in global companies. There are schemes that may focus on helping you grow your money while saving tax, while others may be focused on finding value in the markets.
Debt schemes aim to add stability to your equity portfolio and can provide reasonable returns as they invest in interest bearing securities, like government and corporate bonds, money market instruments and term deposits. There are debt schemes that provide easy liquidity that can be suitable to park surplus cash and those that provide investment opportunities across different time horizons.
There are also schemes that try to benefit from changing market interest rates and those that provide conservative investors an alternative to traditional saving instruments.
Hybrid schemes provide a blend of both equity and debt, as they invest in a range of securities like stocks and bonds depending on the scheme's objectives.
There are also schemes available that allow you to invest in units of gold without having to worry about storing and insuring physical gold.
The world of mutual funds has a variety of options for all kinds of financial needs. All you need to do is identify your need and pick a scheme that may be suited to it. Always remember to make informed investment decisions and invest correctly.
(Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.)