Mutual Funds

The biggest category is equity or stock funds. There are various types of equity suited to every type of investor. Some are based on the size of the companies: small, mid or large cap, while others are based on the investment approach: aggressive, income oriented, value and others.

The MFs that focus on investments that have a fixed return on investment come under the fixed income funds. These include government bonds, corporate bonds or other debt instruments. They are also called bond funds and are often bought at a low value and sold at a profit. They may pay a bigger return but are not risk free. Government securities are much safer as compared to corporate bonds, so the risk wholly depends on the type of bond being invested in.

Those investments wherein the finance managers invest the amounts by buying stocks constituted in an entire index such as the Nifty. This strategy is based on the idea that it is hard to consistently beat the market and hence, play with the market. Rise when it rises and vice versa. Index fund investments also require less research.

When the investment consists of various securities like stocks, bonds, money market instruments and more, it is called balanced funds. The strategy is to reduce the risk. It is also called asset allocation fund. Some of these have a specific allocation strategy so that the market is more predictable for the investors, lowering risks, while others allow for more dynamic allocation, meant to yield higher returns and are not defined by time period, percentages or fixed balance ratios.

These are risk free, short term debt instruments like government treasury bills. It is a safe place to invest your money, even though the returns may be lower. The typical return is an amount higher than interest earned in your bank’s savings account.

These are invested in to provide income on a steady basis & are invested in government and high quality corporate debt. These bought bonds are held till maturity. It is best for conservatives or retirees who want a steady cash flow, but tax conscious investors need to stay clear of these.

As the name suggests, international or foreign funds invest only in stocks that are from outside the country, while global funds are invested in from across the world including from the home country. The world market has been very volatile in the past, but investing in these can mean a more well balanced portfolio and negate some risk as shares from outside the country will move separately from those within as they are not related.

This category is a more all-encompassing category that is constituted by all the funds that have been popular but don’t belong to any rigid categories like the above. Sector Funds are aimed at specific sectors in the economy. These can be high risk and move up and down together as many parameters may match. On the other hand, Regional funds focus on specific geographies. Then there are Socially responsible or ethical funds that invest only in companies that meet certain sustainable criteria.

The ETFs are a popular investment vehicle that employ strategies similar to those of MFs, but are structured as investment trusts which are also traded on the stock exchange, but with added beneficial features of stocks. They can be bought and sold at any time in the trading day, they can be sold short, purchased on margin and carry lower fees. They are more effective, more liquid and enjoy tax benefits.