If you are planning to invest your hard-earned money in the swinging economy of India today, then you must be really confused and won’t be able to select one investment scheme. There are plenty of different investment schemes present in the market, but the most popular one is mutual funds right now.
But, your confusion won’t end up with picking out mutual funds as your investment option because a mutual fund is further available in different types. Thus, to find out which mutual fund scheme will suit you the best, you got to learn about different types of mutual fund schemes first.
Open-End Mutual Fund
A mutual fund can be classified according to the maturity period as well. The mutual fund scheme that comes without maturity restriction is called an open-end mutual fund scheme. In this scheme, investors can subscribe or repurchase their funds anytime according to market conditions. There’s no restriction on the period involved in these mutual funds. The best feature of this mutual fund scheme is liquidity as investors can demand their money back anytime.
Closed-End Mutual Fund
The closed-end mutual fund investment scheme is completely opposite to the open end scheme. This scheme is bound to stipulate a maturity period of at least 5-7 years. This scheme is open for subscription during the launch time only. However, investors can sell or purchase their share of the unit from the stock exchange where they are listed. To provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
It is mentioned in SEBI guidelines that one exit route must be given to investors- either purchase facility directly or through the stock exchange. To dissolve these schemes, at least a period of 2-3 weeks is required.
Growth investment schemes are introduced with the sole motive to increase the capital of the investors. Under such schemes, a major part of capital is invested in equities, thus it is a highly risk-oriented scheme. These schemes offer different investment plans to investors like capital appreciation, dividend option, etc., Investors have to disclose investment option in the scheme forms. The mutual fund allows users to change payment options later on also. This scheme is perfect for investors who want to hold their money for long periods to earn additional incentives.
Debt Based Scheme
This mutual fund scheme is launched to provide a continuous source of income to the investors. In this scheme, money is invested in different types of things like bonds, corporate debentures, Government securities and money market instruments. These funds are not affected by the fluctuation in the market that’s why they are less risky. However, this means that capital gain will be also limited in debt-based schemes. The net asset value of these funds will be affected by the change in the interest of the government. When the interest rates go down, then the value of such funds will increase or vice versa. However, if you are a long term investor, then you won’t feel blow from this fluctuation.
This is a well balanced mutual fund investment scheme where fixed income and growth are provided to investors under one scheme. Under this scheme, money is an investment in both equities and fixed securities so that growth and capital appreciation can be received side by side. This scheme is perfect for investors who are looking for moderate growth. A balanced fund is invested in the ratio of 60-40 in equities and fixed securities. These funds will receive some blow from the fluctuation in the stock market.
Money Market Funds
These funds are pure income funds as they offer easy liquidity, preservation of capital and moderate-income. These types of investments are made for the short period in the government bonds, security certificates, treasury bills, commercial papers, etc., The impact of fluctuation is seen less on these funds as they are of short duration.
So, if you have understood all the different types of mutual fund schemes by now, then you will be able to pick the best scheme according to your convenience. You just need to think about whether you want more growth or income or both.