A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Types of Mutual Funds:
a) Equity Funds
An Equity Mutual Fund invests in equity shares or stocks of companies of different market capitalizations. The aim is to generate high returns than debt funds and other investment schemes.These Funds can be managed actively or passively by their respective fund managers. The fund managers are experienced professional portfolio managers, who are hired for their expertise in the market and funds.
b) Debts Funds
A debt fund is essentially like giving a loan to the issuing entity . In this kind of fund, the investment is done in a a fixed interest generation of income kind of security for example corporate bonds, government securities, treasury bills, commercial paper and other market aveneues like money market. The main motive behind investing in the debt funds is in order to earn interest income , as well as, capital appreciation. The issuer of these funds is in charge of deciding the rate of interest , as well as, the maturity period of said funds. Owing to this, these funds are also termed as ‘fixed-income’ securities because they assure at the very least a stable, safe and fixed source of income upon investment.
c) Hybrid Funds
A hybrid fund is an investment fund that is characterized by diversification among two or more asset classes. These funds typically invest in a mix of stocks and bonds. They may also be known as asset allocation funds.
Hybrid Funds refer to a mix of both debt and equity, providing the features of both equity and debt based funds, thereby countering the limitations of each kinds of funds. Hybrid Funds are ideal for those who wish to enjoy the features of both equity and debt funds i.e they are usually geared toward investors who are looking for a mixture of safety, income and modest capital appreciation.
