Types of Mutual Funds and How to Choose a Suitable Fund to Invest?

Choosing Funds is challenging!

For those, who do not have any knowledge about direct investment in share market, investment in Mutual Funds is quite comfortable for them. With a view to penetrate into rural areas, recently SEBI has facilitated the Fund Management companies with some concessions. In this background, it would become easy for us to know about the available types of Funds, Funds that suit our requirements and then to choose the best of them.

Around 40 Mutual Fund Companies … hundreds of schemes offered by them … we are in fix to take a decision as to their suitability to our requirement and match the goal we set for its use. To overcome this difficulty, basically, we need to know the different types of Mutual Funds and the funds those suit our needs.It helps us to select the best scheme without getting mislead.

With fear of loss.... Equity Diversified Fund

Investments put in small and medium type companies are called Equity Diversified Funds. In them, possibility of loss is more. Before investing in them, first assess yourself as to how much loss you are prepared to absorb and then only go in these funds. Note that in the long term planned investment process, there is every possibility of getting good returns. It is advisable that people having long range plans for children’s education, provision for retirement etc. can go in for them.

Tax exemption…ELSS Mutual Fund

For people, who wish to get tax exemption, Equity Linked Saving Schemes (ELSS) are most suitable. In this scheme, exemption up to one lakh rupees under section 80C is available. In case, you have already invested one lakh rupees, it is not advisable to invest in this scheme again. Note also that the lock-in period in this scheme is 3 years. This scheme is suitable only for getting exemption from tax and nothing else.

For short term investments….Balanced Mutual Funds

Compared to Equity Funds, possibility of loss is less in Balanced Funds. 70 to 80 per cent of these funds will be invested in shares and 20 to 30 per cent in Debt Schemes. Equity funds generally get influenced by the share market’s up and down trends, but in Balanced Funds, the effect will be less. For short range plans like to purchase a house, start a business venture, meet expenses for children’s education, investment in the Balances Funds is good.

For a regular income…MIPs

The best suited funds for those, who do not wish to bear the losses, are Monthly Income Plan (MIP) Mutual Funds. They invest 70 to 80 per cent in Debt Schemes and the rest in Balanced Funds. Those who decide to go in for short term investments to meet their requirements within the next 2 or 3 years, can select these funds. When market is at its best, divert a portion of equity funds into these funds; we will be safe even if the share market nose-dives.

More than FD income… Fixed Maturity Plan (FMP)

In these schemes, investments will be made in Bonds, Deposit Certificates, Government Securities, Commercial Papers and similar domains. Possibility of loss is insignificant in them. They are available in 90 to 366 days or higher periods. This is good alternative to those who feel that returns from fixed deposits are low. It is useful even in case of getting tax exemption. These are useful for short term targets and single payment investments.

For short terms… Liquid Funds

In these schemes, investments will be made only in money market. In case the period of investment is less than one year, investments will be made in Treasury Bills and Debt Schemes. Return will be more than in Savings Account. People, who wish to invest in Mutual Funds with a single payment, can first credit the amounts to these funds and subsequently transfer them in STP mode to the schemes one may select.

Investments in Gold…

Investment in Gold Funds is like investment in Gold ETF. Smaller amounts can also be invested.  Profits as for Gold investments can be earned by investing specified instalments of amounts. It is advisable to invest in them 10% of the amount allotted for long period investment. Facility of encashment is easily available in them. Tax liability will be less.

In tune with the indexes…

In these schemes, investments will be made according to the reflected market indexes. In a way, these are also equity-diversified funds. Its value is dependent on NAV of the funds. For people, who don’t have time to study the markets, can go in for these schemes. Chances of losses are more. They can be utilised to meet the long term set requirements.               

What are your plans? How much you can invest? How much time you can wait?  - basing on the answers to these questions, select the funds, in which you wish to invest. Then only, you can get the expected returns and get your property developed.