What is a mutual fund?
Equity funds are mutual funds that primarily invest in stocks.
They own shares of companies & this is why Equity Funds are also called stock mutual funds.
Equity Funds are categorized by the size of the companies they are invested in.
The holdings they have in their portfolio and the geographical location of the company.
Debt funds or Bond funds are mutual funds that invest in government bonds, liquid funds, treasury bills and other fixed-income securities.
Since they do not invest in equities and invest in fixed income instruments they are considered safer than equity funds.
However, there is no guarantee on this low-risk investment. Returns are expected in a predictable range making Debt Mutual Funds a favourite for conservative investors.
Debt Mutual Funds are managed by professional Fund Managers that have strategies they diversify and align their fund to.
Money Market Funds
Money market funds are also debt mutual funds but these funds invest in short term instruments.
They usually invest for periods of 12 months, with the aim to maintain high liquidity.
High-risk, money market funds can also invest in corporate debt which can lose value during volatile markets situations.
These funds are not insured by the Federal Deposit Insurance Corporation.
The concept of an Index Fund is fairly simple – it imitates the whole portfolio of the market.
So, for example, an index fund that imitates the NIFTY 50 will invest in all the funds mirroring the market.
The cost of managing these mutual funds is lower and they are fast becoming popular in India as well.
As the name suggests, balanced funds tend to spread their investments across asset classes.
They have a healthy mix of low-risk, medium-risk and high-risk assets. These assets also range across stocks, bonds and other securities.
They have a combination of debt and equity to achieve their goal of balanced portfolios.
These funds are also referred to as hybrid funds.
Fixed Income Funds
A fixed-income fund is a type of mutual fund that aims at giving investors returns at regular intervals.
The fixed-income, in this case, can come monthly, quarterly, half-yearly or even annually.
This fixed-income that investors get by investing in such a fund is based on a set percentage and may not be the same amount at each payout.
Fixed income funds invest in government bonds, corporate bonds and other such securities.
Due to the fixed term of these funds, the returns are also reasonably predictable but depend on the performance of the fund.
Fund of Funds
This is what you could call Christopher Nolan’s version of a mutual fund. It isn’t one fund but many.
They are also called multi-manager funds. Funds of funds (FOF) do not directly invest in stocks, bonds and other securities like most mutual funds.
Instead, they invest in multiple mutual funds. This makes funds of funds a large pool of several other funds.
Speciality funds get their name from their approach towards investments.
These funds are mutual funds or other funds that focus on one particular sector, geographical region or industry.
A good example of this would be funds that invest in renewable energy or power etc.
These funds reflect a specific view and can reflect an investor’s personal belief about the nature of industries, sectors or show a bias towards anyone “speciality”.