Investing in mutual funds can be a great way to grow your wealth over the long term. However, with so many different mutual fund schemes available, it can be challenging to know where to begin. One way to start is by understanding mutual fund scheme categories, which can help you determine which types of funds may be best suited to your investment goals and risk tolerance. In this article, we'll provide an overview of the different mutual fund scheme categories and what they mean.
Equity Mutual Funds
Equity mutual funds invest primarily in stocks, making them a high-risk, high-return investment option. These funds are further divided into categories based on the market capitalization of the companies they invest in. For example, large-cap equity mutual funds invest in large companies with a market capitalization of more than Rs.10,000 crore, while mid-cap equity mutual funds invest in companies with a market capitalization of between Rs.500 crore to Rs.10,000 crore. In a similar vein, small-cap equity mutual funds invest in businesses with a market value of under Rs. 500 crores. Equity mutual funds can also be categorized based on investment styles, such as value funds or growth funds.
Debt Mutual Funds
Debt mutual funds invest in fixed-income securities such as bonds and treasury bills, making them a lower-risk, lower-return investment option compared to equity funds. These funds can be categorized based on the duration of the securities they invest in, such as short-term debt funds or long-term debt funds. They can also be classified based on the credit quality of the securities they invest in, such as credit risk funds or corporate bond funds.
Hybrid Mutual Funds
Hybrid mutual funds, also known as balanced funds, invest in both equities and debt securities, providing a mix of high and low-risk investments. These funds can be further categorized based on the percentage of equity and debt securities they hold. For example, aggressive hybrid funds hold a higher percentage of equity securities, while conservative hybrid funds hold a higher percentage of debt securities.
Solution Oriented Schemes
Solution-oriented schemes are mutual funds that are designed to meet a specific financial goal, such as retirement or children's education. These schemes have a lock-in period of at least five years and offer tax benefits to investors.
Index funds are mutual funds that track a particular stock market's index, such as the NSE Nifty 50 or BSE Sensex. These funds aim to match the returns of the index they track and have lower fees compared to actively managed funds.
Understanding mutual fund scheme categories are essential because it can help you make informed investment decisions that align with your investment goals and risk tolerance. Additionally, it is important to track the mutual fund nav history to understand their current market value. NAV stands for Net Asset Value, which is the per-unit market value of the mutual fund scheme. Investors can use NAV to track the performance of their mutual fund investments and make informed decisions regarding buying, holding, or selling their mutual fund units.
Another important category of mutual fund schemes is the balanced fund category. These schemes invest in both equity and debt instruments to provide investors with a balanced portfolio. The equity component of the portfolio provides growth potential while the debt component provides stability and regular income. These schemes are suitable for investors who have a moderate risk appetite and are looking for a balanced approach to investing.
Sectoral or thematic mutual fund schemes are another category of mutual funds that are designed to invest in specific sectors or themes. These schemes invest in stocks of companies operating in a particular sector such as technology, healthcare, or energy.
Thematic schemes invest in stocks of companies that are expected to benefit from a particular trend or theme such as ESG (environmental, social, and governance) investing or digital transformation. These schemes can be risky due to their concentrated exposure to a particular sector or theme.
Mutual funds offer investors a diverse range of investment options with varying risk and return profiles. By understanding mutual fund scheme categories and the current NAV of mutual funds, investors can make informed decisions about which funds to invest in and track the performance of their investments over time. It is also important to consider factors such as investment goals, risk tolerance, and investment horizon when selecting mutual funds to ensure that your investment portfolio aligns with your overall financial objectives.