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How to Choose the Right Type of Mutual Fund

How to Choose the Right Type of Mutual Fund

A collective asset by pooling the capital of a number of investors with more or less common financial objectives, managed and invested by a fund manager in bonds, equities, securities is what we term as mutual funds. Mutual funds have high returns if you make informed investment decisions. The benefits of mutual funds include mitigation of risks by diversification, high liquidity of funds, low or no exit load, SIP route for a systematic and consistent plan. You can easily meet your long-due financial targets by investing in mutual funds, keeping in mind a regular risk assessment of your assets.

Based on your risk appetite and amount of investment, the mutual funds that you can choose are discussed in detail here:

  1. High returns for high risks:
  2. If you are looking for high returns with a diverse portfolio across different sectors, you should unhesitatingly dive into equity mutual funds of the companies.
  3. On the basis of market capitalisation one can choose from small cap to large cap. Beginners can always begin with large cap industries to be on a safer side.
  4. For investors who seek quick growth, equity funds can be a desirable route of investment either through SIP or via a lump sum amount.
  • Fixed Income securities:
  • Debt funds are also known as ‘fixed-income’ securities as the time period of maturity and the interest rate regime is decided beforehand.
  • In debt investment instruments, you as an investor lend money to the security issuing authority.
  • Debt funds include corporate bonds, treasury bills, government securities which are relatively secure.
  • You may decide your period of investment in consultation with experts or the fund manager on the basis of the interest rates prevailing in the markets. Lower will be the interest rates, longer is the maturity period of the debt funds.
  • Debt funds are comparatively low risk investments.
  • Low risk and short term plans
  • Money Market funds are suitable for the investors who deal in low risk and short term investment plans.
  • The returns are also relatively lower in these funds.
  • These funds are related to easily accessible cash or equivalent securities. The returns and gains in the money market mutual funds are reimbursed as dividends.
  • Hybrid Funds also known as Balanced Funds
  • You can choose hybrid funds as a safer option as they are a blend of both the equity and debt funds.
  • These mutual funds can fetch you benefits of high returns as in equity funds with a low risk as in debt funds
  • It is important that your plan to tune with your financial objective.

To invest in mutual funds, you must have well defined financial goals, understanding of different schemes. Calculating the risk factor, and past performance of the funds with the consideration of your age should come handy if you are aiming to stand strong in the game.

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