A Mutual Fund is formed when capital collected by various investors is invested in purchasing company shares, stocks, or bonds. Shared by thousands of investors, a mutual fund is collectively managed by a professional fund manager to earn the highest possible returns.
Mutual Funds are broadly classified into three categories based on their investment traits and risks involved.
Equity funds aim to generate high returns by investing in the shares of companies of different market capitalization. They generate higher returns than debt funds or fixed deposits. How the company performance results in profit or loss decides how much an investor can make based on his shareholdings.
Buying a debt instrument is similar to giving a loan to the issuing entity. A debt fund invests in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments. The basic reason behind investing in debt fund is to earn interest
income and capital appreciation. The issuer pre-decides the interest rate you will earn as well as maturity period. That’s why they are called ‘fixed-income’ securities because you know what you’re going to get out of them.
Balanced or Hybrid funds
Hybrid funds invest in both debt instruments and equities to achieve maximum diversification and assured returns. A perfect blend! The choice of hybrid fund depends on your risk preferences and investment objective.