- What is a Mutual Fund?
A mutual fund is a financial entity that pools shareholder assets to invest in securities such as money market instruments, stocks, bonds, and other assets. Mutual funds are managed by highly professional money managers who deploy the fund’s assets in order to generate capital gains or income for the fund’s investors. A mutual fund’s portfolio is built and managed to match the investment objectives indicated in the prospectus.
Mutual fund purchases on Fi.Money are commission-free. Its user-friendly layout allows novice and experienced investors to choose from more than 800 direct Mutual Funds. Fi.Money is also 100 percent safe because it is managed by epiFi Wealth, a registered financial advisor with SEBI.
Mutual funds are the most comprehensive, straightforward, and customizable approach to establishing a diverse investing portfolio. Securities and Exchange Board of India is known to be a Mutual Fund regulatory authority that gives guidelines for mutual fund classification based on its aim, underlying assets, investment strategy, and so on.
There are quite a few types of mutual funds available for investment, but the majority of mutual funds fall into one of four major categories:
- Stock funds
- Money market funds
- Bond funds
- Target-date funds
- Stock Funds
This fund, as the name suggests, invests primarily in equities or stocks. This group is divided into several subcategories. Some equity funds are named after the overall size of the companies in which they invest: small-cap, mid-cap, or large-cap. Others are distinguished by their investment strategy: aggressive growth, income-oriented, value, and so on.
These are funds that invest in company equity stocks/shares. These are high-risk funds, but they also generate significant rewards. Speciality funds such as infrastructure, fast-moving consumer products, and banking are examples of equity funds.
Funds can be categorized depending on the size of the firms, their market capitalizations, and the growth prospects of the equities in which they invest. The expression value fund refers to an investment strategy that seeks out high-quality, low-growth companies that are out of favor with the market.
- Bond Funds
The fixed income category includes mutual funds that generate a minimum return. A fixed-income mutual fund invests in fixed-income investments such as government bonds, corporate bonds, or other debt instruments. The interest revenue generated by the fund portfolio is distributed to the shareholders.
These funds, sometimes known as bond funds, are frequently actively managed and sought to buy relatively discounted bonds in order to sell them at a profit. These mutual funds are more likely to provide more significant returns, although bond funds are not without risk.
- Balanced Funds
Balanced funds invest in a diverse range of asset types, including stocks, bonds, money market instruments, and alternative assets. The goal of this asset allocation fund is to lessen the risk of diversification across asset classes.
Some funds are defined by a fixed allocation approach, allowing investors to have predictable exposure to different asset classes. Other funds use a dynamic allocation percentages technique to suit a variety of investor objectives. This may involve reacting to shifting market conditions, business cycle changes, or the investor’s life stages.
- Index Funds
Index Funds invest in companies that track a primary market index. This method necessitates less research from analysts and advisors, resulting in lower costs passed on to shareholders, and these funds are frequently built with cost-conscious investors in mind.
- Income Funds
Income funds are named after their goal: to produce consistent current income. These funds primarily invest in government and high-quality corporate debt, holding these bonds until they mature to generate interest streams. While fund holdings may appreciate, these funds’ primary goal is to offer investors consistent cash flow. As a result, the target market for these products is comprised of conservative investors and retirees.
- Money Market Mutual Funds
The money market comprises safe, risk-free short-term debt instruments, the majority of which are government Treasury bills. The principal is guaranteed, but the investor will not earn significant profits. A typical return is slightly higher than that of a conventional checking or savings account and slightly lower than that of a certificate of deposit (CD).
- Specialty Funds
Sector funds are strategy funds that are focused on specific sectors of the economy, such as finance, technology, or healthcare. Because companies in a particular sector are closely connected with one another, sector funds can be quite volatile.
Regional funds facilitate focusing on a certain geographic region of the world. This can imply concentrating on a larger region or a specific country.
Socially responsible funds, often known as ethical funds, invest only in companies that adhere to particular rules or ideals. Some socially responsible funds, for example, do not invest in businesses like alcoholic beverages, tobacco, nuclear power, or weaponry. Other funds focus on green technology, such as wind and solar energy or recycling.
- Global/International Funds
An international fund, sometimes known as a foreign fund, solely invests in assets situated outside of the investor’s native country. Global funds, on the other hand, can invest anywhere in the world. Their volatility is frequently determined by the specific economy and political dangers of each country. However, because returns in foreign nations may be uncorrelated with returns at home, these funds can be part of a well-balanced portfolio by improving diversity.
If you are familiar with the various mutual fund classifications, you could find it simpler to relate to certain financial objectives. To further simplify the process, you may set up recurring payments with Fi.Money, also known as SIPs, to invest daily, weekly, or monthly. SIPs can be set up with a single-screen swipe. Fi.Money also offers complete independence and doesn’t charge late fees. You can evaluate your needs with the goal of the fund and make investments in accordance if you want to receive the highest return on your investment.