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Know About Mutual Fund Scheme Details and Its Avenue

Mutual fund is an investment scheme professionally managed by the industry experts. These schemes are generally rolled out by the Asset Management Companies (AMCs) that pool together the money of a group of people and invest it in the shares, debentures, bonds and other money market instruments.

All the proposed mutual funds schemes are registered with SEBI and function in accordance with the strict guidelines set. There are multiple schemes the investor can invest in but it is important to know about mutual fund scheme details. This ensures the safety of investors funds. Though the schemes offered by various AMCs are different but can be broadly classified into the following categories:

Types of Mutual Funds:

Know about mutual fund scheme details offered by various companies. The schemes are classified into the following categories:

  1. Income Category- The schemes included in this category invests only in the debt instruments issued by the government, public or private companies. The various schemes covered under this category are as follows:

Liquid Funds – The purpose of such schemes is to provide regular earnings with high liquidity. The investment is made in short term income instruments such as certificates of deposits, treasury bills and short term bonds. The ideal investment time period is 1 day to 1 month.   

Short Term Income Funds – Money under these schemes is invested in short-term money market instruments and corporate bonds with the objective receive a higher income without reducing the liquidity. The optimal investment horizon is 1 month to 3 months.

Medium Term Income Funds – The purpose of this scheme is to invest in medium term treasury bills and corporate bonds and fetch higher current income in comparison to short term liquid funds. However, the liquidity is little lower. The appropriate investment time period is 3-6 months.

Long Term Income Funds – The investment under this scheme is directed towards long term treasury bills, dated government securities and corporate bonds. The investor can earn consistent returns on the investment made for the period of more than 6 months to 2 years.

Floating Rate Funds – These schemes invest in both short term investment and long term instruments comprising of government securities and corporate bonds. The instruments are priced at floating rates which are indexed to an interest rate. Returns on these schemes are consistent with reasonable liquidity. The horizon depends on the floating rate scheme chosen.

GILT Funds – The investment is made in the government issued securities known as sovereign securities. These securities are assigned the highest credit rating. Usually, these securities do not carry any credit risk. However, the risk is associated to the fluctuations of the trading prices. The suitable investment period depends on the type of GILT security selected.

Bond Funds – The investment is made in the securities issued by central government, state government, public and private sector companies. The main objective of the scheme is to offer high continual returns from a portfolio of bonds. The investment horizon of these funds is 1-2 years.

Fixed Maturity Plans – These schemes come with a fixed maturity time period and are closed ended in nature. During the duration, an investor can subscribe for the schemes but after maturity, the schemes are closed for a further subscription. The plans have fixed maturity of 3 months, 6 months, 1 year etc. The investor receives fixed interest from a portfolio of different types of debt instruments.

  1. Equity Category- Equity category comprises of schemes in which investment is made only into the shares of companies. The schemes included are as follows:

Diversified Equity Funds – These schemes invest in the equity shares of the public and private companies across different sectors. The aim of the investment is to seek long term capital appreciation by investing in a portfolio across various sectors which in turn, help to reduce the risk.

Sector Equity Funds – It focuses on a specific sector which offers the potential for high capital appreciation in medium to long term time horizon. These funds can also focus on either of the small cap, large cap or mid cap schemes.

Index Funds – These schemes track the performance of the popular index of a stock exchange. The motive of the fund is to let the investors employ the money in stocks that reflect the popular index and in the exact proportion to the stocks that are in that index.

Tax Funds – The investor receives the tax benefit on the diversified equity schemes. These ELSS schemes are entitled to Section 80C deductions of the Income Tax Act, 1962. Moreover, these schemes offer good returns and help in saving taxes.

  1. Hybrid Funds- Hybrid funds refer to the mutual fund schemes that invest in a mix of debt and equity schemes. The type of hybrid funds are as follows:

Balanced Funds – These funds invest in a mixed proportion of equity and debt. These funds provide fair and consistent returns from both equity and debt.

Monthly Income Scheme – The monthly income scheme provides an opportunity to increase the money through fixed income investments and a little exposure to the equity markets.

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