Mutual funds are a collective investment scheme. Various mutual funds options are available. Every business fund house will provide you different types of mutual funds. In this mess how will you choose the right type of mutual fund for you? Mutual funds can be a merit when you can't make a direct investment. Every person must consider before investing so that he /she can save but can also grow his wealth. A mutual fund scheme can be classified under an open-ended scheme or close-ended scheme depending on its maturity period.
Ø Open –ended fund/scheme- An open ended fund or scheme is one that is available for subscription and you can repurchase on a continuous basis. These mutual fund schemes do not have a fixed maturity period. According to the investor's convenience, they can buy or sell units at NAV (Net Asset Value) or related prices which are declared daily. Liquidity is the key feature of open end scheme.
Ø Close-ended Fund/Scheme- This type of fund or scheme has a stipulated maturity period of time e.g.5-7 Yrs. The fund is open for subscription only for the specified period of time when the time of launch period arises.
Ø Schemes according to investment Objective- Schemes can be classified as growth scheme, income scheme or balanced scheme considering its investment objective. These schemes may be the open-ended or close-ended scheme. These schemes may be categorized as:
Ø Growth/Equity Oriented Scheme- Growth funds aim is to provide appreciation in capital over the medium to long-term. These schemes provide different options to the investors like dividend option, capital appreciation etc. These funds are excellent for investors having a long-term outlook looking out for appreciation over a period of time.
Ø Income/Debt Oriented Scheme- The aim of income fund is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities which are bonds, corporate debentures. These funds are less risky compared to equity schemes. NAVs of such funds are affected because of the fluctuation of interest rates. But long-term investors may not bother about these fluctuations.
Ø Balanced Fund- Balanced Funds aim to provide both regular and growing income as these schemes provide investment in both equities and fixed income securities in the proportion indicated in their offer documents.
Ø Money Market or Liquid fund- These fund are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. Investment in short term instrument is made through these schemes like the certificate of deposit, commercial paper, government securities etc. Money market fund is appropriate for corporate and individual investors as a means to park their surplus for short periods.
Ø Gilt funds- These are basically for government securities. Government securities have no default risk. NAVs of these schemes also changes due to change in the interest rates and other economic factors.
Ø Index fund- Index funds is the copy of the portfolio of a particular index such as BSE Sensitive index, S&P NSE 50 index (Nifty) etc. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.Hope, you must have got an idea about the different types of mutual funds. In India, where financial literacy is just growing it is our duty as an investor to be aware. It is our money on the table, so it's our responsibility to take care of it. Let us know what you think