Types of Mutual Funds

As % Gain is main purpose in the financial world with a common saying "High Risk, High Reward",

Investors whose 'risk tolerance'  is low, dread the stock markets because of the inherent fear of losing their hard-earned money, so in order to reduce the risk of losing one's money mutual funds (also called an AMC) come into the picture.

Type of Mutual Funds-

• Equity Fund - An equity fund is a mutual fund that invests principally in stocks. Generally higher risk.

• Diversified Fund - Equity fund which invests across different industries and sectors. If one sector doesn't perform well, another sector would bail the fund out.

• Sector Fund - A sector fund is an investment fund that invests solely in businesses that operate in a particular industry or sector of the economy. (example IT)

• Index Fund - An Index Fund is a type of mutual fund with a portfolio constructed to match or track the components of an index like Nifty 50, etc.

• Tax Saver Fund - Offer tax benefit to investors under section 80C of the Income Tax Act.

• Debt/Income Fund - Mutual Fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments, etc. that offer capital appreciation.

• Liquid Fund/ Money Market Fund - Aims at providing easy liquidity, safety of capital, and some decent returns. An LF invests in highly liquid short term instruments like treasury bills and commercial papers. The period of investment could be as short as one day.

• Gilt Fund - Gilt funds are debt funds that invest primarily in government securities. Provides safety of the principal amount and also secured returns,

• Balanced Fund - Invests both in equity shares and fixed income bearing instruments (debt) is some proportion. The idea is to provide the safety and steadiness of the debt market while capitalizing on the high returns earned from the equity markets.

• Hedge Fund - High-risk fund that adopts highly speculative trading strategies like short selling, derivatives, etc.

AMC-  An asset management company is a firm that invests a pooled fund of capital on behalf of its clients.

Diversification - Idea of spreading money across different types of investment.