Mutual funds is a pool of managed investments, under the authorization of a group of members , identified as fund managers, assigned to take care of the funds coming from various sources to invest on the securities like stocks, bonds, money market instruments and other assets. Simply stated as the market for investors ranging from low to high capital investments in hundreds or thousands of different investment securities. Involving various range of investors helps to ensure the good returns for aggressive investors as well as small investors.
Types of Mutual Funds are classified according to the type of bonds involved, where the capital invested for profits. All kinds of mutual funds have no tax benefits except ETFs
- Money market funds
- Risk free, mostly government Treasury bills
- Lower potential returns than others
- Investment in short term and fixed income securities
- Income funds
- Fixed returns
- Investment to earn interest on regular basis
- Corporate bonds are riskier than government bonds
- Bond funds
- Invest and actively trade on different types of bonds
- Likely to pay high returns than certificates of deposit
- Nearly all bonds are subject to interest rate risk
- Balanced funds
- Invest in mix of equities and fixed income securities
- Diversification among different types of investments
- Low risk compared to equity as money is not just concentrated on returns from stocks
- Equity funds
- Investment in stocks
- Higher risk
- Faster than money market or fixed income funds
- Global funds
- Invests in assets located outside of the home country
- Tend to be more volatile and have unique country and political risks
- Either riskier or safer than domestic investments
- Specialty funds
- Funds focused on mandates like Real estates, commodities or socially responsible investing
- Specific sectors like finance, accounting and health etc
- Possibility for high returns
- Index funds
- Funds depend on the performance of specific index like S&P/TSX composite index
- Lower cost than actively managed mutual funds
- Exchange Traded funds
- Popular investment vehicles pools investments and employ strategies consistent with mutual funds
- Added benefits of the features of stocks
- TDS charges apply
Benefits a Mutual Funds offer are
The team involves professional managers with good expertise who serve the purpose of letting know the information of bonds or securities and their kinds to making sure of returns on regular basis
Mutual funds makes it possible of achieving diversification by summing up of all the ranges of investments involved in a pool to be into different securities, which makes independent of the returns just from a single source. Diversification is the best solution to manage inflation.
Mutual funds also provide the investors to be paid on periodic basis instead of investing at a time forming the capital it needed. As mutual funds involve investments of very small denominations to high denominations and making very much comfortable for the investors.
Unlike stocks, which trade any time during market hours, mutual funds traded only once per day after the fund’s net asset value (NAV) is calculated. No need for checking of share value continuously as it was very important in stocks.
- Economies of scale
Depends on the scale of capital or investment returns also differ. The principle stating the more you buy the more profit you get , the same goes for the Mutual funds, more returns on more investments.
Many companies provide mutual funds at its best plans for aggressive investors and individual or small investments, these include Banking and Non Banking Financial corporations. Some were named as
- ICICI Prudential Value Discovery Fund.
- HDFC Balanced Fund.
- BNP Paribas Mid Cap Fund(G)
- Franklin India Smaller Companies Fund(G)
- Aditya Birla SL Tax Plan(G)
- ICICI Pru Banking & Fin Serv Fund(G)
- Franklin Build India Fund(G)
- Canara Robeco Emerging Equities Fund – Regular Plan.