Mutual Fund – Meaning, Types, Risks, Returns & Taxation

“Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing.”- Hope you read this disclaimer in media. Also Mutual Fund investment is getting popular day by day. So you need to know some basic things about mutual fund.

Mutual Fund : Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase securities such as stocks, bonds, money market instruments etc.

Types of Investment Schemes: Generally, there are three types of Investment Schemes,

  • High Risk / High Return (Share Market Investment)
  • Medium Risk / Medium Return (NPS)
  • Low Risk / Low Return (Capital is protected i.e. no chance of loss) FD, NSC,PPF

Types of Mutual Funds : Basically there are three types of Mutual Funds. Even Tax saving mutual funds are also available.

Equity or Growth Fund:
Key Features:

  • These invest in equities i.e. company shares.
  • High return and Long term investment. 
  • Main objective is Wealth Creation or Capital Appreciation.

Examples:

  • “Large Cap” funds which invests in large established companies.
  • “Mid Cap” funds which invests in medium sized companies.
  • “Small Cap” funds which invests in small companies.
  • “Multi Cap” funds which invests in a mix of large, medium and small companies.
  • “Sector” funds which invests in a particular types of business such as, Real Estate Funds that invest only in Real Estate companies.
  • “Thematic” funds that invest in a common theme. for e.g. Infrastructure funds that invest in companies which will benefit from the growth in the infrastructure segment.
  • Tax saving funds.

Income or Bond or Fixed Income Fund:
Key Features:

  • These invest in Fixed income securities like Government Securities or bonds, Commercial papers and debentures etc.
  • Safer investment and suitable for income generation.

Examples:

  • Liquid
  • Short term
  • Floating rate
  • Corporate Debt
  • Dynamic bond
  • Gift funds etc.

Hybrid Funds:
Key Features:

  • These invest in both Equities and Fixed income.
  • Suitable for Income generation and also have Growth potential.

Examples:

  • Aggressive balanced funds
  • Conservative balanced funds
  • Pension plans
  • Child plans
  • Monthly income plans etc.

Tax Saving Mutual Funds – ELSS: Equity Linked Savings Scheme or ELSS is a popular investment scheme. Let’s read its features.
Key features:





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