Investing in mutual funds is without doubt the best idea if you have been thinking about your future and financial security. The biggest benefit is that you are able to plan it out perfectly based on your financial capabilities, plus you are able to control your investments completely when you have calculated your returns. Apart from understanding the benefits of mutual funds, you have to also understand the different kinds of funds that are present in the market today.
Open ended
One of the biggest kinds of mutual funds is open-ended which would allow you to buy or sell units of the fund at any point of time. In other words, there is no fixed maturity date on the fund. In these kinds of funds, there are a few kinds too
1. Debt/Income funds: In this kind of fund, most of the invested money is put into debentures or other debt investment plans. This could include government security instruments too. Now, even though the capital appreciation is lower as compared to others, it is perfect for investors who want to a constant income coming through.
2. Liquid funds: These kinds of investments are to make the excess funds into short term investments so that you decide a better long term investment afterwards. These kinds of investments are perfect when you have saved an amount and planning a short term investment.
3. Growth funds: These are very popular in retail investments and it could be a high risk element in both the short or long term. These kinds of schemes are a perfect example of the capital appreciation you can receive in the long run. This is probably the reason that most people look at investing in growth funds early so that the risk involved is lesser and the returns on the long run are very good.
4. Tax saving growth funds: This probably the most recommended mutual funds, as they provide big tax benefits to its investors. Your money is invested in equities that offer long term growth opportunities called equity linked saving schemes or ELSS. These kinds of funds normally come with a 3 year lock in period.
Balanced funds
These kinds of funds are good for investors that are looking to enjoy good growth and income at the same time. These funds are invested in different kinds of securities – mostly equities and fixed income. Of course, the proportion of investment is pre-decided and is revealed in the offer documents. These are great ways to get good returns and is cut out for the investor that knows his kind of investment returns and plans. It does bring out a great deal of profits if you plan it right. This makes it one of the most popular types of mutual funds.
Close ended funds
These funds do not allow you to buy or sell units at any point of time. These kinds of funds can be invested at only during the launch of the fund. These are rolled out during the new fund offer period and can be purchased only then. These funds do come with the goal to protect the principal amount and deliver good returns at the same time.
