Types of Mutual Funds

Types of Mutual Funds

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This article discusses the different types of mutual funds that you can invest in.

TLDR Points

  • Mutual funds have mainly three types of asset allocation - equity, debt and hybrid.
  • Equity funds are tied to the stock market.
  • They give great returns at a higher risk.
  • Debt funds are tied to fixed-income securities and are less risky.
  • Hybrid and balanced funds combine debt and equity securities in one portfolio.

Are you looking for an investment instrument to fetch you high returns so that you can live the life of your dreams? Do you want a steady stream of income while you go on to take over the world?

Mutual Funds is an excellent investment alternative to those who want their money to work for them but do not have the time to manage their investments. With professional fund managers, mutual funds invest a pool of assets contributed by investors to offer higher returns collectively.

Read about the types of mutual funds out there to find the right fit to fulfil your dreams.

Equity or growth schemes

Equity funds are those which invest a major portion of their funds into equities. These funds allow you to invest in stock markets without tediously managing your portfolio as the mutual fund manager takes care of it and ensures your returns.

If you are at your prime earning stage, equity or growth schemes are an ideal option to reap long term returns. The diversification that comes with equity mutual funds helps mitigate the risk while providing higher returns.

Three categories of equity funds

Sector-specific funds

It is the right fit for an investor with a high-risk appetite and an ambitious approach towards high earnings. These mutual funds focus on specific categories, say banking or mining or particular segments, such as small-cap or mid-cap. If you are familiar with one particular sector and are willing to bet on it, then such funds are right for you.

Index funds

If you want to invest in mutual funds but don’t want to rely on the fund manager, go for an index fund. The strategy of an index fund is to match the index it is based on.

Let’s say an index fund follows the National Stock Exchange (NSE) and it has a 10% weightage in a particular stock; then the index fund will also invest 10% of its total assets in that exact stock.

If you aim for high returns but have a medium risk appetite, index funds can be an ideal choice for you as the losses, and the gains are proportional to the base index.

Tax-saving funds

Tax-saving funds that invest in equities are also called Equity Linked Saving Schemes (ELSS). One great advantage of them is that they provide tax benefits to the investors under section 80C. These funds also have a three-year lock-in period.

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Money market funds

If you are looking for short-term stable returns, go for money market funds that invest in short-term debt instruments like certificate of deposits or Government Bonds. If you have a low-risk appetite, this type of mutual fund category is a great choice. They are comparatively safer investments offering fixed returns.

Fixed income or debt mutual funds

If you have a low-risk appetite and are looking for a mutual fund categorythat can generate a steady income flow, fixed income mutual funds are just what you need. They invest in fixed coupon-bearing instruments say, investment-grade corporate bonds, debentures etc. with limited credit risks.

Balanced funds

If you want to invest in mutual funds and look for moderate returns but a low-risk combination, don’t blink an eye before going for balanced funds. Aiming at ideal equity and debt ratio, these funds allocate resources based on market risks.

Hybrid/monthly income plans

It is a mutual fund category that is pretty similar to balanced funds; the only difference being the share of equities is lesser here. It ensures a regular flow of income with low risks.

Gilt funds

Here comes an almost risk-free option. Gilt funds invest solely in government securities so that you can bank on the returns. However, the returns offered are nominal and commensurate to the risk involved.

Conclusion

No matter whether you are an ambitious high-risk taker or a risk-averse secure one, there is always a type of mutual fund that specifically caters to your needs. If you are looking for high-quality rated mutual fund schemes, then download the digibank by DBS app. Choose from over 250 schemes based on your investment goals.

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*Disclaimer: digibank offers Mutual Funds that are instant, paperless, signatureless – even transaction fee-less! What’s more? You get to choose from 250+ Mutual Funds across 15 top-performing asset management companies. So why wait? Login to digibank (app or internet banking) and start investing in a flash with instant Mutual Funds on digibank.

Read up more on Mutual Funds here.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.

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