What are mutual funds?Types of Mutual funds in India
What are mutual funds? is it SIP? Often people have a dilemma in mind whether a mutual fund is the same as stock or they are completely different investment tools.
As the name goes, a mutual fund is a fund where a pool of people contributes to building a fund. Mutual funds pool money from the investing public and use that money to buy usually stocks and bonds. The value of the mutual fund company depends on the performance of the stock or bonds it decides to buy. So, when youbuy a unit or share of a mutual fund, you are buying the performance of its portfolio.
For example, 10 people each having 100$ contribute to a fund called ‘Better investor fund’. So the ‘Better investor fund’ fund has 1000$ at its disposal to invest somewhere. Every fund has a manager called ‘Fund Manager’ to manage the money put by investors. The ‘Fund Manager’ takes all decisions concerning how to use the money available in the fund. The Mutual fund charges a small fee to manage the fund. This is often determined as the expense ratio of the fund.
There are different types of mutual funds available in the market.
- Stock-based mutual funds – Equity Mutual fund
- Fixed-income mutual funds – Normally Debt funds
- Monthly income mutual funds – Normally Debt funds
- Tax saving mutual funds – Mainly Equity mutual fund with few debt investments
- Hybrid mutual funds – Mixture of Equity and Debt investments
- Balance mutual funds – Mixture of Equity and Debt investments
- Sector mutual funds- Equity Mutual fund focussed on a particular sector of stocks
- Floating rate mutual funds – Normally Debt funds
- Index Funds – Mainly invests in Index like BSE and NSE
- Money Market Funds – Normally Debt funds focussed on Govt. treasury bills
You can invest in mutual funds in 2 ways:-
Direct purchase from the fund house know as Direct funds – This is preferred choice as it has less expense ratio(mutual fund fees) as the fund house directly manages the customer investments
Purchase via a broker know as Regular funds– This has a bit higher expense ratio(mutual fund fees) as the fund house has to give commission to the broker via whom the customer has purchased the mutual fund.
There are various websites you can browse to check mutual fund details, few of them are as below:-