Common Types of Mutual Funds

All mutual funds aren’t created equally, there are mutual funds for different asset classes and there are blended ones too.

Here we share the common types of mutual funds:

Money Market Fund – These are the most popular ones and they invest in short-term fixed income securities – Treasury bills, commercial paper, and certificates of deposit. They are generally safe but that comes with potentially lower returns than other types of mutual funds. They aim to preserve capital

Bond Fund – These are funds that invest in long-term fixed income securities – government bonds (federal and state), investment grade corporate bonds and may even invest in junk bonds. They aim to generate regular income from interest and coupon payments.

Equity Fund – These are funds that invest in the shares of publicly listed companies. They could be different variants of these depending on the strategy of the investment manager – growth stocks (rapidly expanding businesses), value stocks (large established companies), dividend stocks (companies that pay large dividends), large-cap stocks, mid-cap stocks, small-cap stocks, or combinations of these. The aim is capital appreciation.

Balanced Fund – These are funds that invest in a mix of equities and fixed income securities. The aim is to balance the objectives of capital preservation, income generation and capital appreciation.

Index Fund – These are funds that simply track the performance of a specific index eg NSE 30. Unlike the other funds, where the investment manager is actively making decisions about what to buy/sell, the manager of an index fund just trades what is in the index and in the assigned proportions.

Specialty Fund – These are funds that focus on a particular sector of the market or have specialised mandates such as entertainment, real estate, commodity, ethical, diversity etc

Fund of Fund – These are funds that invest in other funds. Because not all investment managers are able to consistently deliver on their mandate, the aim is to find the investment managers that will outperform.

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