Investment is one of the simplest ways to increase wealth. However, most people are unaware of the intricacies of the markets to navigate investments profitably. Mutual funds investment is a specialized system where anyone can invest money. You do not need to have an extensive idea about the workings of the market as professional fund managers manage your investments. In exchange, you pay a minor portion of the profits you earn to these fund managers.
What are mutual funds?
Mutual funds refer to a pool of money accumulated through a number of investors. This accumulated fund is invested in various market schemes, such as debt funds, stocks and liquid assets. The profits and losses from this investment are shared equally among the group of investors. However, due to the involvement of professional fund managers, the risk of losing money is severely restricted.
Now that you know what mutual funds are, here is a look at the types of mutual funds investment you need to know about.
Types of mutual funds
1. Equity funds
In this kind of mutual funds, your money is invested directly into stocks and equities of various companies. These schemes provide high-risk high-return opportunities to investors.
2. Debt funds
Investments into company debentures, government bonds and fixed income assets are classified as debt funds. These mutual funds investment provide a limited return but are much safer than equity funds.
3. Money market funds
In these kinds of mutual funds, the money is invested in liquid assets, such as T-Bills, CPs and more. Such investments are safer and offer moderate returns. However, money market investments are best suited to people looking to invest a lump-sum amount.
4. Sector funds
Sector funds are those mutual funds investments where your money is invested in one particular sector of the market, such as infrastructure. The risk and return depend on the current performance of the sector where you have invested your money.
5. Index funds
In such an investment, your money represents a particular index on the stock exchange in a bid to determine the returns and the speed of the index.
6. Tax Saving funds
These mutual funds investments are preferred by those trying to save paying taxes on the profits earned through their investments. Generally, a large chunk of the profits are paid off as income tax, but investing in tax saving mutual funds will result in greater profits reaching your hands, as you are liable for annual tax exemptions.
If you are looking to invest in mutual funds, your choice is limited to these six types. However, seek advice from financial experts to understand, which one is the best option for your investment profile.
What are mutual funds?
Mutual funds refer to a pool of money accumulated through a number of investors. This accumulated fund is invested in various market schemes, such as debt funds, stocks and liquid assets. The profits and losses from this investment are shared equally among the group of investors. However, due to the involvement of professional fund managers, the risk of losing money is severely restricted.
Now that you know what mutual funds are, here is a look at the types of mutual funds investment you need to know about.
Types of mutual funds
1. Equity funds
In this kind of mutual funds, your money is invested directly into stocks and equities of various companies. These schemes provide high-risk high-return opportunities to investors.
2. Debt funds
Investments into company debentures, government bonds and fixed income assets are classified as debt funds. These mutual funds investment provide a limited return but are much safer than equity funds.
3. Money market funds
In these kinds of mutual funds, the money is invested in liquid assets, such as T-Bills, CPs and more. Such investments are safer and offer moderate returns. However, money market investments are best suited to people looking to invest a lump-sum amount.
4. Sector funds
Sector funds are those mutual funds investments where your money is invested in one particular sector of the market, such as infrastructure. The risk and return depend on the current performance of the sector where you have invested your money.
5. Index funds
In such an investment, your money represents a particular index on the stock exchange in a bid to determine the returns and the speed of the index.
6. Tax Saving funds
These mutual funds investments are preferred by those trying to save paying taxes on the profits earned through their investments. Generally, a large chunk of the profits are paid off as income tax, but investing in tax saving mutual funds will result in greater profits reaching your hands, as you are liable for annual tax exemptions.
If you are looking to invest in mutual funds, your choice is limited to these six types. However, seek advice from financial experts to understand, which one is the best option for your investment profile.
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