MUTUAL FUNDS

Investment in equities is considered as an owner of the particular company that you have invested in, to the extent of the investment. So naturally, like any answer, profit is linked with the performance of the company. The higher the profits of the company, the better is the share price and hence the better your gains. You have absolutely no assurance whatsoever on the principal, rate of interest, or tenure when investing in equity mutual funds.

Like with any high-risk action, Equity funds also carry the potential to deliver high returns. And to help counter this risk, Mutual Funds are invested in multiple companies that usually don't belong to one or correlated sectors. This is known as diversifying. 

In the long run, one needs to be guarded against inflation, and in the short run, market fluctuations. Equity, though volatile, has proved to be a better bet against inflation, provided one has a long term investment. 

Diversified Equity Fund: These funds invest in equity shares across sectors, sizes, and industries. The portfolio is spread across sectors and stocks, with no single security dominating the portfolio. They are less risky because of the diversified nature of the portfolio. Some diversified funds may focus only on large and established stocks, reducing the risks further by investing in very stocks with a good track record.

Sector Fund: These equity funds invest only in a specific sector. For example, a banking sector fund will invest in only shares of banking companies. Gold sector fund will invest in only shares of gold-related companies. They are concentrated funds and feature high risk,  because as the level of concentration increases risk also increases. Sector performance tends to be cyclical.

Index Fund: Index Fund invests in stocks comprising indices, such as the Nifty 50, which is a broad based index comprising 50stocks.There can be funds on other indices which have a large number of stocks such as the CNX Midcap 100 or S&P CNX 500

Equity Linked Saving Scheme:These funds offer tax benefits u/s 80C of Income Tax Act, 1961.Investment up to Rs 150000 in a year in such funds can be deducted from taxable income of individual investors.ELSS must hold at least 80% of the portfolio in equity securities at all times. There is a lock- in period of 3 years from the date of investment.

Themati fund: These funds invest in line with an investment theme .For example, an infrastructure thematic fund might invest in shares of companies that are into infrastructure construction, steel,telecom,power etc. 

LARGE-CAP FUNDS- Invest a large portion of their corpus in companies with large market capitalization are called large cap funds. This type of fund is known to offer stability and sustainable return, over a period of time.

MID-CAP FUNDS- invest in stocks of mid-size companies, which are still considered developing companies. Mid-cap stocks tend to be risker than large-cap stocks but less risky than small-cap stocks.Mid-cap stocks, however, tend to offer more growth potential than large-cap stocks. 

SMALL-CAP FUNDS- invest in companies with small market capitalization with the intent of benefitting from the higher gains in the price of stocks. The risk is also higher.

Debt Funds help bring stability to your investment portfolio since they are lower in risk as compared to Equity Fund, yet riskier than Liquid Funds and their aim itself is to generate steady returns while preserving your capital. These would typically invest in government securities, NCD, CDs, CPs bonds, and other fixed-income securities as well as lend money to large organizations or Corporates, in return for a fixed interest rate. Therefore, investing in Debt Mutual Funds would be ideal if you are looking at a potentially higher return than Liquid Funds over a medium-term time horizon between 3 to 24 months.

  So the great thing about debt funds is that they are designed primarily to protect your capital and provide stable returns by investing in debt securities.

Gilt funds invest in only treasury bills and government securities, government securities of medium and long term maturities.Since investment is made in government securities, there is no risk of default.These funds are exposed to interest rate risk depending on their maturity.

If interest rate goes up, the value of a debt security goes down.This is because an older debt security issued at a lower coupon rate, say 6% is not attractive if a newer debt security is being issued at current market rate of say 8%.The older security's coupon rate remains unchanged until its maturity; therefore its price falls in response to the higher rate prevailing now in the market.This is called interest rate or mark-to-market risk in debt security.

Fixed Maturity Plans are closed-ended debt mutual fund schemes. Simply put, a closed-ended scheme is one where you can invest only during the new fund offer period, post which it is shut for new subscriptions, it has a fixed time horizon and the money is given back to you upon the expiry of the period.

• Money Market or Liquid Funds are very short term maturity.They invest in debt securities with less than 91 days to maturity.  The primary source of return is interest income. Being a short-term fund it seeks to provide safety of principal and superior liquidity.
• Ultra short-term plans are known as treasury management funds, or cash management funds. They invest in the money market and other short-term securities of maturity up to 365 days.
• Short Term Plans combines short term debt securities with a small allocation to longer-term debt securities. Short term plans earn interest from short term securities and interest and capital gains from long term securities.
• Fixed maturity plans(FMPs) are closed-end funds that invest in debt securities with maturities that match the term of the scheme.

ETFs hold a portfolio of securities that replicates an index and are listed and traded on the stock exchange. The return and risk on ETF are directly related to the underlying index or asset. The expenses ratio of an ETF is similar to that of an index fund.

ETFs are first offered in a New Fund Offer loke all mutual fund s Units are credited to the Demat account of investors and ETF is listed on the stock exchange . Ongoing purchases and sales are done on the stock exchange through trading portals or stockbrokers. The settlement is like a stock trade, and debit or credit is done through the Demat account.

ETF prices are real-time and known at the time of the transaction, unlike NAV Which is computed end of a business day. Their value change on a real-time basis along with changes in the underlying index.

• Convenience
• Diversification
• Tax Benefits
• Minimal Transaction Fees
• Transparency
• Arbitrage Opportunities
• Liquidity

Gold fund, as the name suggests, invests in various forms of gold. It can be in the form of physical gold or stocks of gold mining companies. Gold funds which invest in physical gold offer investors the convenience of buying pure gold at low cost. There is no possibility of theft and you can sell these units at market linked prices anytime.

The purpose of these types of investments is to create wealth during an investment and create a cushion against market collapse. Because of gold’s varying prices, the performance of its underlying stocks often differ greatly

 For example, even a tiny change in gold’s global market price can cause substantial alterations in its stock’s return. The return of the best gold funds can even outgrow the actual price of the precious metal itself, which can create a lucrative opportunity for investors.  

Like any other mutual fund, gold mutual funds make returns based on the movement in their underlying investment. In this case, NAV of gold funds change based on the price of the gold ETFs in which they have invested. A gold ETF’s price moves in tune with gold prices. By investing in a gold mutual fund, therefore, you are able to capture the movement of gold prices. 

 Flexible Investment Amount- Gold funds allow investors to purchase any amount of funds as per the requirement. An investor can invest as low as Rs 500, which allows individuals with low income to invest in this type of fund.Instead of purchasing physical gold, which often carries a significantly high cost 

Highly Liquid Investment- Trading these funds is easier than liquidating other types of assets, which makes them ideal as a financial cushion to protect against an unforeseen incident.

Safe Investment-  Gold funds are one of the safest investment options, as these mutual funds are regulated by the Securities and Exchange Board of India (SEBI). SEBI periodically monitors and reports on the condition of these funds, which can help investors measure and predict their returns.

Safer than owning Physical Gold- Being an electronic investment, which eliminates the hassle of storing physical gold. Because of its dematerialization form, it is one of the safest alternatives to investing in a physical asset available in today’s market.