In the last decade or so, mutual funds have become a viable source of investment for the young and the old. They have gained a lot of interest as within a short span of time you can build a diverse portfolio. For your retirement needs and even to build funds in the short or long term they are a plus. Just like any other investment type, you need to be aware about the surrounding myths about mutual funds and clearly figure out which are the best mutual fund scheme to invest. In fact you need to understand in details about the basics of mutual funds.
The types of mutual funds
Various types of mutual funds are present that are further categorized into numerous factors. They are
- Debt mutual funds- if you are unsure about investing then government bonds or fixed investment securities are an option if you want fixed returns. These funds are mobile and carry lesser risk
- Equity mutual funds- mainly investment is made in the stock market. The returns would depend on how the stock market performs. Ideal for long term investment, they go on to provide higher returns in the long run.
- Open ended funds- the nature of such funds is that there are no restrictions as you can enter and exit the market as you feel. As an investor you can invest any time and withdraw because there is no fixed lock in period. Though exit or entry to such funds could levy a charge, but there is no restriction on the amount of share that a fund can issue.
- Close ended funds- in terms of entry or exit there is a restriction on such funds. Usually they have a lock in period of 3 years during which users cannot withdraw their funds. Only limited number of shares is issued and to cope up with investor demand no new share is expected to be issued.
- ELSS mutual funds- as the name suggest the nature of such funds is that they are tax saving instruments. These deductions come under section 80 C of the income tax act and there is a lock in period of 3 years.
- Sectorial funds- pretty much as the name suggests such funds concentrate on a particular sector like banking or real estate. The money being part of such funds is further re invested by a fund manager for which the fund has been formulated.
The role of a fund manager assumes considerable importance in the choice of funds. They are experienced professionals who handle the amount that is invested in a mutual fund. They invest money in funds from which massive investment is assured. In case of a market crash, the role is to cut down on the risk. In an ideal situation the fund manager needs to hold an in depth experience, with a proper understanding of the market on where you need to invest in the funds. You need to be aware on when to make the investment and when to leave the market.
