What is Mutual Fund Investment?

What is Mutual Fund Investment

Mutual Fund Investment:

Mutual Fund Investment is a type of  Investment vehicle that is operated by an Asset Management Company (AMC). The AMC’s Fund Manager who is a professional, collects funds from people and invests them in bonds, shares of various companies.

Mutual funds are an excellent investment option for individual investors seeking exposure to an expertly managed portfolio. Also, you can diversify your portfolio by investing in mutual funds as the asset allocation will include multiple instruments.

Investors will be allotted with fund units based on the amount invested by them. Therefore each investor will experience a profit or loss that is directly proportional to the amount invested by them. The main objective of the fund manager is to provide optimum returns to the investors by investing in securities which are in line with the objectives of the fund. The performance of a mutual fund depends on the underlying assets.

Mutual funds, unlike stocks, do not invest only in a particular stock. Instead, a mutual fund scheme will invest in multiple investment options to provide the best possible returns to the investors. Moreover, investors do not need to do their own research to pick the best performing stocks as the fund manager, and their team of analysts and market researchers, do the research and select the top performing instruments that has the ability to give returns.


Equity Mutual Funds:

Equity Mutual Funds invest in Equity Shares of companies with almost all market capitalisations. A Mutual Fund is classified under Equity Fund if it invests at least 65% of its portfolio in Equity Investments. Equity Funds have the potential to deliver the highest returns among all categories of Mutual Funds. The returns provided by Equity Funds depend on the market movements, which are influenced by a number of geopolitical and economic factors.

There are seven types of Equity Funds:

i) Large-Cap Funds

ii) Mid-Cap Funds

iii) Small-Cap Funds

iv) Multi-Cap Funds

v) Sector or Thematic Funds

vi) Index Funds

vii) ELSS Funds


Debt Mutual Funds:

Debt Mutual Funds invest mostly in Money Market, Debt,and other fixed-income instruments such as Treasury Bills, Government Bonds, Certificates of deposits and other high-rated securities. A mutual fund is considered a debt fund if it invests a minimum of 65% of its portfolio in debt securities. Debt funds are ideal for risk-averse investors as the performance of debt funds is not much affected by market fluctuations.

There are seven types of Equity Funds:

i) Liquid Funds

ii) Short-Term and Ultra Short-Term Debt Funds

iii) Dynamic Bond Funds

iv) Income Funds

v) Gilt Funds

vi) Credit Opportunities Funds

vii) Fixed Maturity Plans


Balanced Mutual Funds or Hybrid Mutual Funds:

Balanced Mutual Funds or Hybrid Mutual Funds invest in both Equity and Debt. The main objective of Hybrid Fund is to balance the risk-reward ratio by diversifying the portfolio. The Fund Manager will modify the asset allocation of the Fund based on the market conditions in order to benefit the investors and minimize the risk level. Investing in hybrid funds is a great way to diversify your portfolio as you will get exposure to both equity and debt instruments.

There are four types of Balanced Mutual Funds or Hybrid Mutual Funds:

i) Equity-Oriented Hybrid Funds

ii) Debt-Oriented Hybrid Funds

iii) Arbitrage Funds

iv) Monthly Income Plans

About ANUP SINHA 58 Articles
My Name is Anup Sinha, the Founder of BankQna.Com. Here I share Contents on Banking & Investment. If you have any Query or Need Article on any Topic then Please Comment. Thank You.