Understanding Mutual Funds:
Stock Market is much talked about investment option for retails investors nowadays. But there is equally fear of losing money in stock market investments. A retail investor does not possess the knowledge of stock market but still may like to enjoy the benefits of stock market like higher return (return above inflation) Tax efficient investment, flexibility in investments and withdrawals and so on
Mutual Funds play an important role in being a bridge between the retails investors and the stock market. The investors have money and willingness to invest in stock market but restrained to do so because of the fear of losing money in stock market.
The Mutual Fund companies do have expertise in stock market investments, have fund managers capable of analyzing the stocks both technically and fundamentally and choosing the right stock at the right time so as to make good returns for their investors.
People often mistake mutual fund is also always a risky investment. It is not so. Mutual Funds have various categories of fund options: Equity Funds, Debt Funds, Balanced Funds, Liquid Funds.
Equity Funds are further categorized into Large Cap Funds, Mid Cap Funds, Small Cap Funds, Multi-Cap Funds, Tax Saving Funds, Thematic Funds and so on.
The money mobilized under large-cap funds are invested into large corporate companies stocks and should not be diverted to any other category of stocks. This is considered to be a stable fund.
The amount mobilized under Midcap and Small-cap funds are invested in the mid and small level companies stocks. These investments carry a little higher risk and the reward also will be higher.
The amount mobilized under Multicap funds will be invested across all levels of stocks. All these funds will be invested under the said category of stocks coming under various sectors like Pharma, IT, Banking, FMCG, Automobiles and so on
Thematic funds are sectoral funds. The money mobilized under a sector say Banking sector will be invested in banking stocks only. There are various sectoral funds like Banking, Infrastructure, FMCG, International, Pharma, Technology and so on.
Balanced funds (Hybrid Funds) are a mixture of Equity and Debt instruments. The balanced funds are further categorised in to Equity Oriented Balanced fund (with more than 65% equity exposure) and Debt oriented balanced fund (with more than 50% debt exposure) The Debt oriented balanced funds are further divided in to Debt oriented Hybrid fund – Aggressive and Debt oriented Hybrid fund – Conservative with the changes in the Equity / Debt ratio.
Mutual Funds also have debt funds and liquid funds. The debt funds are invested in debentures and bonds issued by Government and the corporates.
Liquid funds are invested in money market instruments and short-term and ultra-short term bonds.
The advantages of investing in Mutual Funds:
The following funds may be considered for investments
Large Cap funds
Tax Saving Funds
Equity Oriented Hybrid Funds