Mutual is a single pool of money collected from a large number of investors. This pool of money is invested by asset management company in stocks, bonds and other securities. The capital realised from these investment is shared by the investors in proportion to the number of units they own.
Types of mutual funds
There are different types of mutual funds and you should select the best mutual fund that suits your needs. Mutual fund can be classified based on
- The scheme structure
- The asset class the scheme invetss in
Based on the schemen structure they can be further classified as
- Open ended schemes
This scheme is always open to investors. You can buy and sell units on a continuous basis.
- Closed ended schemes
This scheme has a lock-in period. The lock-in period may vary from 3 -5 years based on the scheme objective.
Based on the asset class the scheme invest in they can be further classified as
- Equity scheme
This scheme is suitable for long term investments. It can focus on an individual sector or diversified across sectors.
- Debt scheme
This scheme invests in interest bearing securities like government or corporate bonds, money market instruments and term deposits.
- Hybrid scheme
This scheme provides the blend of both equity and debt schemes. It invests in a range of securities like stocks and bonds depending on the scheme.
Systematic investment plan (SIP) allows you to invest calculated amount of money in mutual funds regularly. This calculated amount is called the SIP amount. You should invest the right SIP amount regularly to reach your financial goals. The benefits of investing in sip mutual fund is that you can invest in a disciplined way every month and thus you do not have to time the market. By investing small amount regularly you can reach your final big amount.
It is important to invest in the right mutual fund. You should choose the fund that best suits your needs. You can seek the guidance of the financial advisor before investing. Financial advisors help you optimize your mutual fund investments. They help to
- Prioritise your goals
- Give you the right advice on SIP and investments
- Develop a plan that suits your needs
You should always consult a financial advisor to make informed investment decisions.