8 Types of Mutual Funds Terms Simplified !

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There are so many types of mutual funds these days , that many time investor get confused about them as the nomenclature changes , when the mutual fund companies pitch for marketing its plan. Therefore, the readers are made aware about different kinds of classification  of mutual fund plans

Equity Funds

Main objective of this kind of fund is capital appreciation of equity shares . So  majority of funds are invested in shares of listed companies.This kind of fund is high risk ,,high gain categories , because the return is based on share market which is bound to fluctuate.mutual Funds

 

Income Funds

 

As the name suggest , the primary objective of this kind of funds is to provide safety of investments and regular income to the investors.So, the money raised by mutual fund companies , deploy mainly to bonds, debentures and other debt related instruments as well as equity shares of companies with high dividend payouts.

Balanced Funds

This is a balanced approach to investment ! The best of both world- equity investments as well as bonds and other debts – are at your service. So, this kind of mutual funds gives moderate gains with moderate risk because of judicious mix of  shares, as well as bonds, debentures and other debt related instruments.

Money Market Mutual Funds (MMMFs)

The investment objective of these kinds of  mutual funds is to take advantage of the volatility in interest rates in the money market . So , fund managers invest in Certificate of deposits (CDs), call money market, commercial papers. Investors can participate indirectly in the money market through MMMFs. Very low risk , with high interest earning prospects.

Sectorial Funds

This innovation is for targeting a specific sector. For example , mutual fund companies start a plan to invest primarily for software sector or reality sector. Therefore, the risk an reward is related to the sector for which it was created.Investments are done shares of companies in certain sectors or specific income producing securities .

Index Funds

This kind of mutual fund plans were invented with the popularity of stock market benchmark indices . For example Sensex or NIFTY . So , the investment objective of these plan is to  invest only in those shares that form a part of the benchmark index, in exactly the same proportion, so that the value of the index fund varies in proportion with the benchmark index.

Hedge Funds

The term Hedge Funds have become popular in India because ethey are in media reports and likely reason for stock market rise, however, India there are almost no hedge funds . In case of hedge funds, as the name suggests, the investment objective is to hedge risks in order to increase the value of the portfolio , so fund mangers  buy rising shares and sell shares whose prices are likely to fall.

There are also liquid funds, closed funds ,open funds ,fund of funds etc which will be explained in later part