Various types of Mutual Fund schemes exist to satisfy the different requirements of different people. There are generally three types of mutual funds.

Equity or Growth Funds

• They invest primarily in equities, i.e. Shares of companies
• The most important goal is the generation of wealth or capital appraisal.
• They are able to generate higher return and are ideal for long term investments.
• These are only a few examples.
  • “Large Cap” funds which invest predominantly in companies which have established large businesses
  • ” Mid Cap Funds” that invest in mid-sized enterprises. funds that invest in mid-sized businesses
  • “Small Cap” funds that invest in small sized companies
  • “Multi Cap” funds that invest in a mix of small, mid and large medium-sized businesses.
  • “Sector” funds which invest in businesses which are associated with one kind of business. For instance. Technology funds invest only in technology companies
  • “Thematic” funds that invest in a similar theme. For e.g. Infrastructure funds invest in companies that can profit from the expansion of the infrastructure sector
  • Tax-Saving Funds

Income or Bond or Fixed Income Funds

• They invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.
• These investments are safer and can be used for the generation of income..
• Examples include Liquid Funds Short-Term, Fixed Rate, Corporate Debt, and Dynamic Bond.

Hybrid Funds

• These investments are in Equities and Fixed Income, thereby offering the best of bothworlds, Growth Potential as well as income generation.
• Examples are Aggressive Balanced Funds as well as Conservative Balanced Funds as well as Pension Plans and Child Plans as well as Monthly Income Plans, etc.

How can Mutual Funds help manage risk?

There are a variety of risk factors. If you have a share in a business, for instance, you could be facing a market risk, price risk, or company-specific risk. The share of just that company may dip or even be wiped out due to any one of these reasons, or the combination of these factors. You van visit Mutual Funds Service online.

A Mutual Fund portfolio typically holds many securities. This lets you enjoy ” diversification“. In reality, diversification is one of the main advantages of investing in a Mutual Fund. It makes sure that a dip in the price of the fund’s securities will not impact portfolio performance in a drastic way.

Another important risk to bear in mind is Liquidity Risk. What exactly is liquidity? It’s the ease in changing an asset into cash. If an investor owns an investment fixed for say 10 years. She requires money within the 3 ^rd year. This presents a typical liquidity problem. Her priority at this point is access to cash and not returns. Mutual funds, as a result of regulation and form, can provide enormous liquidity. They are designed to provide investors with the ability to invest and redemption.

Also read: Importance of Positioning