Mutual Funds: Features and Benefits

A Mutual Fund is a financial instrument that pools money of several investors to buy different securities like shares, debentures/bonds or money market instruments. These securities are professionally managed by fund managers on behalf of the investors.

Read on to know more about the benefits of Mutual Funds with Bajaj Finserv:

Small investments

Mutual Funds helps you invest your money in different companies. And offers you an opportunity to invest in diverse portfolios.

Professionally managed

The money you invest in Mutual Funds is managed by fund managers who possess a profound knowledge of financial markets, through thorough research of the economy and markets. They help you pick favourable investment opportunities.

Diversification

Mutual Funds divides your investment in different companies across a wide spectrum of industries, which helps in minimizing market risks.

Transparency and interactivity

Mutual fund managers communicate with investors on a regular basis informing them about investment strategies and the value of their investments.

Liquidity

Usually Mutual Funds allows investors to sell their holdings anytime without worrying to find a buyer, provided they don’t have a lock-in period. Your money is available to you anytime you want subject to exit load.

Low transaction cost

Owing to economies of scale, Mutual Funds usually have lower transaction cost.

Regulations

Mutual funds are registered with SEBI and function within the provisions of strict regulation created to protect the interests of the investor.

Types of Mutual Funds

Based on your goals and your investment horizon, Mutual Funds give you the option to invest your money across various asset classes like equity, debt and gold. This allows you to diversify your investments and strive to reduce your portfolio risk.

The different types of Mutual Funds are as follows:

Equity Funds/Growth Funds

Mutual Funds that invest in stocks are equity funds. The objective of equity funds is capital appreciation of the investment over medium or long term investment horizon. These are high risk funds and their returns are subject to stock markets. Equity funds are the best option for investors seeking long term growth. There are different types of equity funds such as sector specific funds, diversified funds and index based funds.

Diversified Funds

Diversified Funds gives investors the option of investing in companies spread across sectors. These are best suited for investors who don’t want their investments to be restricted to a particular sector.

Sector Funds

Sector Funds invests in equity shares in a particular industry or a business sector. These funds are riskier compared to diversified funds but yield higher returns. Investors who invest in sector funds need to keep an eye on the performance of sectors in which the investment has been made.

Index Funds

Index funds invest in the same pattern as popular stock market indices like S&P BSE Sensex and CNX Nifty Index. The value of these funds vary in proportion to the benchmark index. The Net Asset Value of such schemes are dependent on the rise and fall in the index. This would vary with the benchmark owing to a factor known as “tracking error”.

Tax Saving Funds

Tax saving funds offer tax benefits to investors under section 80 C of the Income Tax Act, 1961. These funds are best suited for investors seeking tax rebate and looking for long term growth.

Debt Fund / Fixed Income Funds

These Funds invest in rated debt/fixed income securities like debentures, government securities, corporate bonds, commercial papers and other money market instruments. They are best suited for the medium to long-term investors seeking regular and steady income. These are less risky as compared to equity funds.

Liquid Funds / Money Market Funds

Liquid funds provide easy liquidity and invest in highly liquid money market instruments. The period of investment in these funds could be as short as a day. They are ideal for institutional investors, corporates and business houses who invest their funds for very short periods of time.

Gilt Funds

These funds are best suited for the medium to long-term investors who are averse to risk and invest in government securities. Gilt funds have no default risk.

Balanced Funds

These funds invest both in debt (fixed income) instruments & equity shares, provide growth and regular income. They are ideal for medium to long-term investors willing to take moderate risks.