Mutual funds are a collective investment scheme. Various
mutual funds options are available. Every business fund house will provide you
different types of mutual funds. In this mess how will you choose the right
type of mutual fund for you? Mutual funds can be a merit when you can't make a
direct investment. Every person must consider before investing so that he /she
can save but can also grow his wealth. A mutual fund scheme can be classified
under an open-ended scheme or close-ended scheme depending on its maturity
period.
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Open
–ended fund/scheme- An open ended fund or scheme is one that is available
for subscription and you can repurchase on a continuous basis. These mutual fund schemes do not have a fixed
maturity period. According to the investor's convenience, they can buy or sell
units at NAV (Net Asset Value) or related prices which are declared daily.
Liquidity is the key feature of open end scheme.
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Close-ended
Fund/Scheme- This type of fund or scheme has a stipulated maturity period
of time e.g.5-7 Yrs. The fund is open for subscription only for the specified
period of time when the time of launch period arises.
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Schemes
according to investment Objective- Schemes can be classified as growth
scheme, income scheme or balanced scheme considering its investment objective.
These schemes may be the open-ended or close-ended scheme. These schemes may be
categorized as:
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Growth/Equity
Oriented Scheme- Growth funds aim is to provide appreciation in capital
over the medium to long-term. These schemes provide different options to the
investors like dividend option, capital appreciation etc. These funds are
excellent for investors having a long-term outlook looking out for appreciation
over a period of time.
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Income/Debt
Oriented Scheme- The aim of income fund is to provide regular and steady
income to investors. Such schemes generally invest in fixed income securities
which are bonds, corporate debentures. These funds are less risky compared to
equity schemes. NAVs of such funds are affected because of the fluctuation of
interest rates. But long-term investors may not bother about these
fluctuations.
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Balanced
Fund- Balanced Funds aim to provide both regular and growing income as
these schemes provide investment in both equities and fixed income securities
in the proportion indicated in their offer documents.
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Money
Market or Liquid fund- These fund are also income funds and their aim is to
provide easy liquidity, preservation of capital and moderate income. Investment
in short term instrument is made through these schemes like the certificate of
deposit, commercial paper, government securities etc. Money market fund is
appropriate for corporate and individual investors as a means to park their
surplus for short periods.
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Gilt
funds- These are basically for government securities. Government securities
have no default risk. NAVs of these schemes also changes due to change in the
interest rates and other economic factors.
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Index
fund- Index funds is the copy of the portfolio of a particular index such
as BSE Sensitive index, S&P NSE 50 index (Nifty) etc. Necessary disclosures
in this regard are made in the offer document of the mutual fund scheme.
Hope, you must have got an idea about the
different types of mutual funds. In India, where financial literacy is just
growing it is our duty as an investor to be aware. It is our money on the
table, so it's our responsibility to take care of it. Let us know what you
think
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