Mutual funds is a trust that pools money from a group of investors sharing common financial goals and invest the money. In other words, a mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. Financial intermediaries or investment companies carry out detailed analysis on the market conditions and then invest this money in a diversified manner to minimize risk and maximize the rate of return on the investment.
Every Mutual Fund will either be categorized under Growth or Dividend Option.
Growth Option: In these Kind of Mutual Fund whatever Dividend is given by the Mutual Fund time to time according to the Performance will be invested back in that Mutual Funds & No. of Units will be allotted for that Dividend Money.
Dividend Option: Mutual Funds Provides Dividend to Investors time to time. This Dividend is Tax Exempted & No Income Tax is levied on it.
Types Of Mutual Funds
While launching a new schemes, Mutual Funds declares whether this will be an open ended scheme (i.e. there is no specific date when the scheme will be closed) or there is a closing date when finally the scheme will be wind up. Thus, according to the time of closure schemes are classified as follows:
Open Ended Schemes: Open ended mutual funds are those mutual funds that do not have a fixed maturity. You can buy and sell these funds anytime throughout the year.
Close Ended Schemes : These types of funds are open only during certain period of time, not through out the year like open ended mutual funds. And if you invest for this type of mutual fund then your fund will get locked for that particular period which varies between three to fifteen years. You can sell or redeem your units only after your lock in period completes.
Interval Scheme : Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units are available for purchase or sale during a selected period.
By Investment Objective
Growth Scheme: Growth Schemes are also known as equity schemes. As this invest mainly in equities with the aim to provide capital appreciation over medium to long term.
Income Scheme: Income Schemes are also known as debt schemes. As this invest mainly in fixed income securities such as bonds and corporate debentures with the aim to provide regular and steady income to investors. Capital appreciation in such schemes may be limited. These are low risk and aim at a fixed current income .
Balanced Schemes: Also called Hybrid funds, aim is to provide a balanced mixture of safety, income and capital appreciation. The strategy of balanced schemes is to invest in a combination of equity and debt. Equity ensures the growth and debt instrument ensures the steady income to the investors.
Money Market Schemes: These Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper etc..
Index Schemes : Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index.