Mutual funds are investment that help an investor attain his financial goals.

Mutual funds are investment that help an investor attain his financial goals.
There are 4 broad types of mutual funds. Equity (stocks), fixed income (bonds), money market (short term debt)or both stocks and bonds (balanced/hybrid)

Equity funds – buy stocks of a collection of publicly traded companies. Equity funds have a higher capacity for growth but more potential volatility in value.The younger a person is, the more should be his allocation to equity funds. Equity funds rise up or go down due to the performance of the companies, the economy in general or any particular Government initiatives. They couild be large, midcap, smallcap, sector,thematic, diversified funds etc.

Bond funds – Here the investors are paid a fixed amount back on their initial investment.They invest in government and corporate debt. Since their riskj is lower their potential is lesser than equity funds.This is ideal for investors who are risk averse or who are looking to cushion their exposure to equity

Money market funds – These are fixed income mutual funds that invest in high quality, short term debt from Governments, banks or corporations.This is recommended for investors who want safety.

Balanced funds – They invest in a mix of equity and debt. So generally they provide returns higher than fixed income instruments but lower than pure equity funds. This is ideal for the 1st time investor or investors who are retired and want a steady income stream without taking too much risk.
These are the main categories. Now funds could be open ended, close ended or interval schemes. Open ended schemes are those where investor can enter or exit at any point of time. Close ended schemes have a window for a certain period where it is open for public subscription and post that it is locked for a certain period of time. However it is open for sale by investors in the stock exchange. But the price in the stock exchange tends to be different from the NAV since there are not many buyers and sellers.

Interval schemes are those which combine the characteristics of both open ended and close ended schemes. They remain open for sale and purchase once in 6 months or so for a period of approximately 14 days.

It is generally recommended to invest in open ended schemes since the investor can redeem whenever he wishes to. The amount is credited to the account of the investor after T+3 days. So an open ended scheme is one of the most liquid assets which help in creating wealth for the long term.
Post the categorisation and rationalisation of schemes, the names of the mutual fund schemes are very lucid and transparent. There cannot be more than 1 scheme of a fund which has the same objective which was the case earlier. For instance there can only be 1 large cap fund.
Investors who do not have the time or the expertise should choose from the different types of mutual funds based on the risk appetite and the duration for which he/she is holding.

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