Classification of funds by types of underlying investment.

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It’s important to understand that each mutual fund has different risk. Similarly some funds are less risky than others. You need to find less risk funds. In general, higher potential return and higher risk of potential loss. It’s never possible to diversify all risk funds. You check on best money market fund.

Types of underlying investment.

Mutual funds are normally classified by their principal investments. It has four main categories of funds are money market funds, bond, equity and hybrid fund. Within these categories, funds may be classified by investment objectives.

Money market funds

This type of Mutual fund that has low risk compared to other MF. Therefore, you can invest in only certain funds. Because, they are high quality with short term investment. Mostly, issued by government. Usually, government and retail money market funds try to keep their NAV stable. If the fund’s investments perform poorly NAV may falls. Types of money market funds.

However, government money market fund that invests in cash. Probably, retail money market has policies and procedures to give limit on owners’ money. Moreover, all money market funds pay dividends. It reflects short term interest rates. You may find low risk in money market funds.

Above all, it safe place to park your money. You won’t get high returns. But you won’t have to worry about losing your investment amount. It is an open ended mutual fund. And it is type of mutual fund with low risk and low return investment. You will be safe place to invest easily. Therefore, this funds has average maturity must be 90 days or less than. Check money market Mutual fund List.

Bond Funds

These bonds funds are also called debt fund. Mostly, these funds invest in bonds or other debt securities. You must know options in debt funds. Such as Monthly income plan (MIPs), short term plans (STPs) and fixed maturity plans. Apart from these, it invests in short term, medium and long term bonds.

Probably, debt funds are preferred by individuals. Who are not willing to invest in high equity market. This fund is an investment pool. You may invest in short term or long term bonds. Similarly, these fund save tax to bank FDs. Hence, they are safer than equity mutual funds.

Debt funds invest in various types of securities. Such as government securities, bonds and top rated corporate deposits. In addition, all fixed deposits are issued by banks. To pay certain fixed rate of interest on principal amount for certain period of time. Check performance of bonds.

However, they are very tax efficient and give mush higher tax returns. Hence, especially people in higher tax brackets will go these funds. It is alternate source of investment to fixed deposit. All above, it is alternate source of investment to fixed deposit.

Equity funds

An Equity fund has mandate requiring portfolio manager to invest. In shareholder’s cash in ownership of business. These funds can come in both traditional mutual funds. And also called Exchange Traded Funds (ETFs).This stock can trade over exchanges throughout day. Like individual shares of stock.

However, this fund invests in stocks. It can be actively or passively managed. In addition, this equity funds are also known as stock funds. You can make money by investing in equity stock market. You can check types of Equity mutual funds.

Therefore, equity funds may be classified into six. Like large cap, mid cap, small cap funds, sector fund, ELSS funds and international equity funds. Large cap funds invest into large sized companies. Probably, mid cap funds invest in midsized companies. It provides good returns. But risk is higher than large cap mutual fund.

Similarly, small cap companies include firms. Hence, that is in early stage of development with small revenue. In addition, they are typically defined as firms with less market capitalization. Since, small cap stocks give high growth and high returns. But, risk of failure is higher with small caps compared to large and mid caps. Check examples of Equity fund

As per above, thematic funds invest into particular sector. Like infrastructure, power, media & entertainment. E.g. Reliance mutual fund. Since, it provide exposure on specific industry, risk will be high. You can invest across world.

Finally, An ELSS funds have lock in period with 3 year period. In addition, they provide benefits of section 80c to you. However, international funds invest in foreign markets. You can invest anywhere around world. You check difference between debt and equity.

Hybrid funds

These are funds that invest in liquid instruments. In some cases, risk is higher than debt. In addition, risk and returns are balanced. Therefore, objective of these funds. Will provide balance mixture of safety, income and capital appreciation.

However, these funds will invest in both fixed income and equity. If stock values increase more than bonds. Your portfolio manager will automatically re-balance your portfolio. Similarly this type of fund is known as an asset allocation fund.

Finally, these kinds of funds do not have to hold. You can switch over to other fund. Most of mutual funds are variations on theme. At most basic level, there are three types of MF. Those who seek risk free rate. You can invest in stocks, bonds and both stocks and bonds.

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