What are the different types of mutual funds and their features

If you are considering to invest in mutual funds then you will be required to dig into some necessary details before pushing any sum into it. The mutual fund schemes come with various features and in varied types. Some of them prove to be amazing while others require determination to make a profit and avoid loss. Moreover, you will need to understand the types of schemes, their benefits, do’s and donts’, etc. to come across the best mutual fund to invest in.

It is important to understand the best mutual fund scheme before you invest in them. There are various types of accounts one can open. Here are the different types of mutual funds you can check out to invest in:

Equity Funds

It is considered as the largest category among the various funds’ schemes. Equity fund or stock fund suggests the investment of principals in stocks. Notably, there are various sub-categories in an equity fund such as small, mid or large-cap or aggressive growth, value, income-oriented, and so on. Besides, it can also be categorised as domestic and foreign equities.

Fixed income funds

It is the second-largest category where a set rate of return can be expected. The example of these funds is the corporate bond, government bond, or debt instruments. It aims at generating interest income by the fund portfolio and passing it to the shareholders. These can be considered as the best mutual fund schemes and are likely to produce higher returns since these are actively managed funds that buy undervalued bonds and sell the same at a profit.

Index Funds

Index funds are one of the trending groups of a mutual fund with an investment strategy that is both difficult and expensive. It buys stocks from the major market index correspondence. It is suitable for cost-sensitive investors. That is why it is considered as the best mutual fund one can invest in.

Balance Funds

A balanced fund is invested in both stock and bonds, which reduces the risk of stock exposure to a particular asset. It is also known as an asset allocation fund, since the investor of the fund may find the allocation of these funds among the assets. It involves lower risk and thus can be the best mutual fund scheme for ones who are not ready to bear much loss. Since it is subject to fluctuation, it carries risk.

Money market fund

It is considered to be a risk-free investment plan with short-term debt instruments, mainly government treasury bills. It is a safe plan where you can invest your money. Although there would not be a return of a substantial amount, the principal at the cost of which one invests will not be at risk either.

Income funds

It aims at avoiding income on a steady basis. Income funds are invested mostly in government and quality corporate debt. These bonds are held until maturity so that it can offer interest streams. Thus it offers a steady flow of cash to the investors.

International funds

Also known global funds, it aims at the investment on assets in or outside your homeland. Although these schemes can be described as volatile, the funds can be classified to be equally riskier or safer than the domestic investment.

Other than the above mutual fund schemes, one can also go for speciality funds and exchange-traded funds. Also, it is important to check for the fees and charges to find the best mutual funds in India for you. Since the scheme involves both profit and loss, it is better to go through the details of each and every fund scheme so that you can decide which one is the most suitable for you. In addition to this, there is no cent per cent guarantee of profit, thus be prepared in case of loss rather than being at risk. However, with thorough research and a smart plan, one can get the best out of the schemes.

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