There are different types of mutual funds that you can invest in. But if you are a beginner to investing, you need to consider the pros and cons of each type of fund and see what is best for your capabilities and financial condition. You can start small with less risk and then gradually progress into larger investment avenues.
There are investment funds based on asset classes. These are equity funds, money market funds, debt funds, and hybrid funds. Equity funds are invested in stocks and money will be pooled by various investors. This pooled money is invested in the stocks of various companies. And the performance of the invested shares will determine the profits and losses of the investors. These funds can achieve high long-term returns. Therefore, it results in higher risks as well.
A money market fund is when investors invest in the capital market. This is operated by the governments and it is run alongside financial institutions like banks and corporations that issue bonds, certificated, dated securities, etc. Your money will be invested by a fund manager. Fixed income securities will come under debt funds. These interests have a fixed maturity date interest rate.
If you are a passive investor whose goal is to receive a regular income with reduced risk, this is something to consider. Hybrid funds are a combination of stocks and bonds. It is the best of both worlds when compared to debt and equity funds. However, you need to be willing to take more risks.
There are open-ended funds where there is no limitation in the time or number of trading units. You will be able to trade funds at your convenience and leave when the new asset value prevails. When the unit capital you invest is specified at the beginning. It becomes a closed-ended fund. This happens when the company can’t sell above the agreed number of units in the beginning.
The characteristics of open-ended and close-ended funds are combined in interval funds. There are set intervals when the funds are available to be purchased or redeemed. The fund will be closed the majority of the time. If your goal is to obtain a lump sum in short-term duration, this is a suitable fund type for you.
You may have different investment goals as well. If you are looking for money that you can use for high-risk funds, you can look into growth funds. Under the category of debt funds, you can find liquid funds.
Investments are in the money market and in debt instruments. The net asset value in a liquid fund is calculated for the entire year (365 days) instead of just counting the business days like in other funds. There are also income funds where you can distribute your money for different bonds, securities, and deposits. These will have a fund manager who will maintain the creditworthiness of the portfolio. These are low-risk funds. You can also look into tax-saving funds that are suitable for long-term investments.