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Mutual Funds Advisory

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Types Of Mutual Funds

By Structure

Open Ended

These are schemes that do not have a fixed maturity. The mutual fund ensures liquidity by announcing sale and repurchase price for the unit of an open-ended fund.

Closed Ended

These are schemes that have a fixed maturity. The money of the investor is locked in for the period. Occasionally, closed-end schemes provide a re-purchase option to the investors, either for a specified period or after a specified period. Liquidity in these schemes is provided through listing in a stock market.

By Investment Objective

Equity Schemes

Equity schemes primarily invest in shares. Based on the objective investments could be in growth stocks where earnings growth is expected to be high or value stocks where the view of the fund manager is that current valuations in the markets do not reflect the intrinsic value. Various kinds of equity schemes are:

  • Equity Diversified:
    All non-theme and non-sector funds can be classified as equity diversified funds.
  • Mid Cap:
    These funds invest in companies from different sectors. However they put a restriction in terms of the market capitalization of a company, ie, they invest largely in BSE Mid Cap Stocks.
  • ELSS:
    ELSS is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs 1, 50,000 under section 80(C).
  • RGESS:
    Rajiv Gandhi Equity Savings Scheme is a tax advantage savings scheme for first time retail investors in securities market. It gives tax benefit who invest upto Rs. 50,000 & whose annual income is below Rs. 12 Lakhs. Tax benefit is upto 50% deduction on investment amount under section 80 CCG of income tax act.
  • Thematic:
    These schemes invest in various sectors but restrict themselves to a particular theme eg, services, exports, consumerism etc.
  • Sector Specific:
    These are schemes that invest in a particular sector for example IT. They have a high degree of risk associated with them as if that particular sectors does not perform then their returns will suffer.
  • Flexicap:
    These kinds of schemes invest across market caps.
  • Special Funds:
    There are also schemes to meet financial objective like retirement & child plan.

Debt or Income Schemes

Such a fund invests in interest bearing securities mainly government securities and corporate bonds. This fund earns returns for its investors from interest income on its investments and profits on trading securities. In terms of risk, this type of fund is the least risky.

Money Market Schemes

These schemes invest in short term debt instruments issued by the government, corporate or banks. These are typically investments in short term papers like the CPs and CDs etc.

Hybrid Schemes

  • Balanced Schemes:
    Balanced schemes invest in a mix of equity and debt. The debt investments ensure a basic interest income, which the fund manager hopes to top with a capital gain from the investment in equities. However loses can eat into basic interest income and capital.
  • Monthly Income Plans:
    MIPs are suitable for conservative investors who along with an exposure to debt do not mind a small exposure to equities. These funds aim to provide consistency in returns by investing a major part of their portfolio in debt market instruments with a small exposure to equities. Thus an MIP would be suitable for conservative investors who along with protection of capital seek some capital appreciation as MIPs have an exposure to equities. However the monthly income is not assured.
  • Hybrid Asset Allocation Funds:
    These schemes invest in a mix of Equity, Arbitrage and Debt.
  • Asset Allocation Funds:
    These schemes invest in a mix of Equity, Debt & Commodity.

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