What Are Mutual Funds? How Many Types Of Mutual Funds Are There?

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Mutual Funds
Mutual Funds

There are numerous ways to invest money and extract promising returns in the present era. Moreover, the investment industry is still in a diversification state, providing the investors a chance to get excellent ROI. 

Mutual Funds are one such investment option that gives the investor chance to put money in different forms and get a return. Generally, the money managers control the MFs, and their work is to allocate the assets and ensure capital gains.

Well, if you have a plan to invest in MFs, this article can help you a lot. But, first, you can check for the definition and types here. So, go through the following parts of the article. 

Mutual Fund: Definition

As a definition of Mutual Fund, we can say it is a money pool. Investors make this pool by keeping securities in it. Every fund has some investment objectives.

On the other hand, the sole responsibility of supervising a mutual fund stays on professional money managers. The investors act like the shareholders, and they get the returns according to the profits and losses of the market. However, the percentage of profit/loss is always proportional for every shareholder. 

The best way to understand mutual funds is to invest in them. You can find a proper MF, read about the money manager, and invest in it. As a result, you can expect to get the returns on time.

Types Of Mutual Funds

Types Of Mutual Funds
Types Of Mutual Funds

After definition, you need to know about the types of MFs. Here are the leading types of MFs. Check the entries below:

1. Money Market Funds

According to many investors, the Money Market Funds is the best mutual fund. So, you can rely on it. Shortly known as MMFs, these can help you get fixed returns over a short period. 

The level of risk is low in the case of the MMFs, and you need to check the NAV for a pool you are investing in. These funds deal with government and treasury bills, certificates, and bankers’ acceptance. 

2. Equity Funds

Equity funds mainly deal with stocks. So, the stock investors generally seek equity funds. These are high-risk MFs but can grow quickly and give the investor a high ROI

3. Balanced Funds

The equity type of balanced fund is mixed, and you can get fixed incomes while investing in them. However, the rising level in the returns always stays in the balance with the risk. As a result, an investor rarely sees a drastic loss. 

If you are looking forward to investing in balanced funds, you can check the fidelity mutual funds or any other MF of a similar category. 

4. Fixed Income Funds

If you aim to invest in bonds, you can choose fixed-income funds. This is a type of mutual fund where you can keep corporate bonds, government bonds, and high-yielding corporate bonds. In this case, the funds earn interest regularly, and you can get money (as a shareholder) based on it. 

If you are new to handling a fixed-income fund, you can keep the government bonds. Always avoid keeping the high-yielding corporate bonds as they have high market risk. Again, check if the 

5. Index Funds

Index Funds are unique as it tracks the performance of a specific index to determine the level of returns. Many new MF investors choose it due to the low cost. The main reason for its affordability is due to the inertness of the manager. The money manager does not need to do research. 

6. Income Funds 

If you are looking for income funds, you can check on the website of Vanguard mutual funds. The equity for this fund is the current income of the investor. Income funds are an excellent option for improving portfolios. The income is considered monthly or quarterly. 

7. Specialty Funds

Specialty funds are a type of MF that most real-estate investors seek. Otherwise, these funds invest in organizations that show proper social responsibility. The return is mediocre here and the level of risk is low. 

8. Global Funds

Global Funds are premium MFs that deal with company investments with organizations located globally. It can have both single assets and multiple assets as equity. The best part about global funds is that one can manage them passively. Nevertheless, maintaining global firms can be tricky and you need to know how to invest in mutual funds.

9. Exchange-Traded Funds

The exchange-traded funds are a unique type of pooled investment that actually resembles an MF. In this case, you can find the fund to track several things like sectors, commodities, other assets, and even indexes. In case you are about to work with ETFs, you should know how a mutual fund works. 

As an investor, you can both buy and sell the ETFs on a stock exchange. All you need to check is the transparency of the fund. The best you can do; is take suggestions from an expert before investing in the ETFs. 

Frequently Asked Questions (FAQs):

1. What Are The Risks Of Investing In Mutual Fund?

A mutual fund is a money-market-related investment tool. So, as an investor, you can always have market risks in case of returns.

2. What Are The Things To Consider While Investing In A Mutual Fund?

There are mainly four things to consider while investing in a mutual fund. They are:
⦿ The type of the fund is as per equity.
⦿ The level of risk and return. 
⦿ Presence of a professional money manager. 
⦿ The term of the MF. 

3. How Many Types Of Funds Are There In India?

There are mainly three types of funds in India. They are fiduciary, proprietary, and governmental. 

Wrapping Up

Earlier, many investors had a concept that investing in MFs can lead them to complete loss. Well, you can now consider that a dramatic change has occurred. It is mainly due to the improved transparency of mutual funds and their diversification. 

So, if you are a new investor who wants to shine in the industry, you can choose a few types of MFs from the list and put up some equity.

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