Broadly, there are four common asset classes — Property, Fixed Income, Equity and Gold — where you can invest your money.
(Except for property) mutual funds offer a very wide variety of schemes encompassing Fixed Income, Equity and Gold... in all kinds of permutations and combinations.
Besides, they also offer schemes focussed on the global markets. So, with mutual funds you can even add international flavour to your portfolio.
Here's a brief overview of the various types of schemes available under the GIANT mutual funds umbrella.
a. Large-cap funds: These invest the available corpus in large-sized companies only. As large companies have a stable business, one can expect stable returns from such schemes.
b. Mid-cap / Small-cap funds: Investment focus of such schemes is the mid and small sized companies. These, as you know, are relatively high-growth and high-risk in nature. Hence, with such schemes you can expect relatively more returns, but with more risk.
c. Multi-cap funds: These are diversified funds that invest across the entire equity market. They don't base their investment decision on the size of the company. While the large companies in the portfolio provide stability, mid and small companies add that extra to the returns.
d. Tax saving funds: Also known as Equity Linked Savings Scheme (ELSS), these can be diversified, mid/small-cap or large-cap in nature as far as the investment is concerned. However, they are eligible for tax deduction u/s 80C of the Income Tax Act and have a 3-year lock-in period.
e. Thematic / Sector funds: As the name suggests, these funds invest the corpus in a particular sector or theme. Popular categories herein include Pharma, Banking, Infrastructure, FMCG and Technology. As the investment is limited to one sector or theme, the risk in such schemes is comparatively higher. Hence, only a small part of one's portfolio should ideally be invested in such CONCENTRATED funds.
f. Index funds: These funds invest in the companies — and in the same ratio — that comprise a particular index e.g. Sensex or Nifty. Hence, they mimic the given index. As the companies and investment pattern is pre-decided, these are passive funds. India being a growing economy, there are many good companies that are NOT PART OF the index. As such, active funds have normally outperformed the passive funds.
(Important: If you don't know what "interest-rate" risk or bonanza is, you must first read the following blog posts:
- Lost Capital In Fixed Deposits: Many. In Debt Funds: None.
- You Can Lose Money Even In The Govt. Securities
These will help you to better understand and appreciate the categorization of debt funds.)
a. Income funds: These invest in both corporate bonds and Govt. securities that still have many years to mature. They are, therefore, also known as long term debt funds. Among various debt funds, these have the highest probability of interest-rate gains or risk (depending on when you invest in a given interest rate cycle).
b. Short Term Funds: Investment herein is limited to securities, both corporate and Govt., which will mature in maximum around 2-3 years. Accordingly, the interest rate gains or risk too are limited in such funds.
c. Ultra Short Term Funds: Investments maturing in around 3 months to one year, form the universe for ultra short term funds. So the interest-rate gains or risk are further minimized.
d. Liquid funds: These funds invest in highly liquid money market instruments maturing within maximum three months. As such, the impact of interest rate movements is practically eliminated. These are a good alternative to Savings Account as the returns are much better and liquidity is very easy.
e. Dynamic Bond funds: These are diversified funds where the fund manager can invest across the entire time-scale, depending on how the interest rate scenario is likely to unfold. If you can't closely monitor your debt portfolio and take timely action, this is where you should invest your money.
f. Credit Opportunities funds: Unlike the above funds which invest both in corporate bonds and Govt. securities, these funds invest only in the corporate bonds. The idea is to improve the returns, as corporate bonds offer higher interest rates than Govt. securities. However, this increases the default risk. Hence, caution is advised when choosing such funds.
g. Gilt funds: Unlike the above funds, these invest only in Govt. Securities. So the risk of default is almost zero; only the interest rate risk / bonanza remains. In this category, you will come across Short Term Gilt Funds and Medium / Long Term Gilt Funds.
h. Fixed Maturity Plans: These are close-ended debt funds. You can't redeem them any day you want, like an open-ended fund. Instead, like fixed deposits these have a specific maturity date. Since the maturity of the securities is matched with the maturity of the scheme, the interest-rate risk is practically zero. So, at the time of investment itself you know more or less what returns you will earn.
i. Floating rate funds: Most securities come with a fixed rate of interest. Some, however, come with an interest reset clause. In other words, the interest rates will be linked to the market and hence change from time to time during its tenure. It’s like your floating rate home loan. Again, the idea is to minimize the interest rate risk.
b. Gold Funds: Gold ETFs require demat account and do not have SIP facility. So, mutual funds have introduced gold funds. These invest in the Gold ETFs. So again your returns are linked to the gold prices. However, this adds an extra layer of costs. You have to pay fund management charges of two funds. But, you don't need a demat account and SIP is possible.
b. Debt-oriented hybrid funds: Also commonly referred to as the MIP or Monthly Income Plans, these are conservative funds that invest around 75-90% corpus in debt markets and the remaining 10-25% in equity markets.
c. Miscellaneous: There are other hybrid funds too with different equity-debt investment pattern; or equity-debt-gold asset allocation; or equity-debt-arbitrage asset allocation; or close-ended capital protection funds, and much more.
- Baffled by Arbitrage Funds? Here's the simple explanation.
- Arbitrage funds : Excellent way to park short-term money
b. International or Global Funds: These invest in international markets. Given the diversity of choices, there are many kinds of international funds e.g. Location-specific (US, China, Emerging Markets, Asia, etc.), Asset-specific (Agriculture, Gold, Mining, etc.), and more.
This wide canvas of schemes from mutual funds, is indeed a boon for the investors. Each person can create a portfolio that is a perfect match to his/her financial profile.
Conservative investors can choose debt funds. Debt funds are also good for the investors in higher tax brackets; or those with limited investment time-frame. Equity funds are apt for the aggressive investors. Moderate-risk investors would find both comfort and returns in the hybrid funds. A bit of gold and international funds help in diversifying the portfolio.
In addition to this unlimited choice, following benefits make the Mutual Funds an excellent investment option:
- Professional Management
- Instant Diversification
- Day-to-day monitoring
- Tax friendly laws
- Highly liquid
You are missing a lot, if you are not into mutual funds.
(Except for property) mutual funds offer a very wide variety of schemes encompassing Fixed Income, Equity and Gold... in all kinds of permutations and combinations.
Besides, they also offer schemes focussed on the global markets. So, with mutual funds you can even add international flavour to your portfolio.
Here's a brief overview of the various types of schemes available under the GIANT mutual funds umbrella.
1. Equity Funds
Categorization of equity mutual funds is primarily based on the type(s) of companies they invest in.a. Large-cap funds: These invest the available corpus in large-sized companies only. As large companies have a stable business, one can expect stable returns from such schemes.
b. Mid-cap / Small-cap funds: Investment focus of such schemes is the mid and small sized companies. These, as you know, are relatively high-growth and high-risk in nature. Hence, with such schemes you can expect relatively more returns, but with more risk.
c. Multi-cap funds: These are diversified funds that invest across the entire equity market. They don't base their investment decision on the size of the company. While the large companies in the portfolio provide stability, mid and small companies add that extra to the returns.
d. Tax saving funds: Also known as Equity Linked Savings Scheme (ELSS), these can be diversified, mid/small-cap or large-cap in nature as far as the investment is concerned. However, they are eligible for tax deduction u/s 80C of the Income Tax Act and have a 3-year lock-in period.
e. Thematic / Sector funds: As the name suggests, these funds invest the corpus in a particular sector or theme. Popular categories herein include Pharma, Banking, Infrastructure, FMCG and Technology. As the investment is limited to one sector or theme, the risk in such schemes is comparatively higher. Hence, only a small part of one's portfolio should ideally be invested in such CONCENTRATED funds.
f. Index funds: These funds invest in the companies — and in the same ratio — that comprise a particular index e.g. Sensex or Nifty. Hence, they mimic the given index. As the companies and investment pattern is pre-decided, these are passive funds. India being a growing economy, there are many good companies that are NOT PART OF the index. As such, active funds have normally outperformed the passive funds.
2. Debt Funds
Debt mutual funds are categorized primarily based on (i) the tenure of the bonds or (ii) the securities they invest in.(Important: If you don't know what "interest-rate" risk or bonanza is, you must first read the following blog posts:
- Lost Capital In Fixed Deposits: Many. In Debt Funds: None.
- You Can Lose Money Even In The Govt. Securities
These will help you to better understand and appreciate the categorization of debt funds.)
a. Income funds: These invest in both corporate bonds and Govt. securities that still have many years to mature. They are, therefore, also known as long term debt funds. Among various debt funds, these have the highest probability of interest-rate gains or risk (depending on when you invest in a given interest rate cycle).
b. Short Term Funds: Investment herein is limited to securities, both corporate and Govt., which will mature in maximum around 2-3 years. Accordingly, the interest rate gains or risk too are limited in such funds.
c. Ultra Short Term Funds: Investments maturing in around 3 months to one year, form the universe for ultra short term funds. So the interest-rate gains or risk are further minimized.
d. Liquid funds: These funds invest in highly liquid money market instruments maturing within maximum three months. As such, the impact of interest rate movements is practically eliminated. These are a good alternative to Savings Account as the returns are much better and liquidity is very easy.
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| You will find all kinds of investments on the Mutual Fund buffet table. |
e. Dynamic Bond funds: These are diversified funds where the fund manager can invest across the entire time-scale, depending on how the interest rate scenario is likely to unfold. If you can't closely monitor your debt portfolio and take timely action, this is where you should invest your money.
f. Credit Opportunities funds: Unlike the above funds which invest both in corporate bonds and Govt. securities, these funds invest only in the corporate bonds. The idea is to improve the returns, as corporate bonds offer higher interest rates than Govt. securities. However, this increases the default risk. Hence, caution is advised when choosing such funds.
g. Gilt funds: Unlike the above funds, these invest only in Govt. Securities. So the risk of default is almost zero; only the interest rate risk / bonanza remains. In this category, you will come across Short Term Gilt Funds and Medium / Long Term Gilt Funds.
h. Fixed Maturity Plans: These are close-ended debt funds. You can't redeem them any day you want, like an open-ended fund. Instead, like fixed deposits these have a specific maturity date. Since the maturity of the securities is matched with the maturity of the scheme, the interest-rate risk is practically zero. So, at the time of investment itself you know more or less what returns you will earn.
i. Floating rate funds: Most securities come with a fixed rate of interest. Some, however, come with an interest reset clause. In other words, the interest rates will be linked to the market and hence change from time to time during its tenure. It’s like your floating rate home loan. Again, the idea is to minimize the interest rate risk.
3. Gold Funds
a. Gold ETF (or Exchange Traded Fund): These invest in pure gold. Hence, your returns are directly linked to how the gold prices move during your investment period.b. Gold Funds: Gold ETFs require demat account and do not have SIP facility. So, mutual funds have introduced gold funds. These invest in the Gold ETFs. So again your returns are linked to the gold prices. However, this adds an extra layer of costs. You have to pay fund management charges of two funds. But, you don't need a demat account and SIP is possible.
4. Hybrid Funds
a. Equity-oriented hybrid funds: Also commonly referred to as the Balanced Funds, these are aggressive funds that invest around 65-75% corpus in equity markets and the remaining 25-35% in debt markets.b. Debt-oriented hybrid funds: Also commonly referred to as the MIP or Monthly Income Plans, these are conservative funds that invest around 75-90% corpus in debt markets and the remaining 10-25% in equity markets.
c. Miscellaneous: There are other hybrid funds too with different equity-debt investment pattern; or equity-debt-gold asset allocation; or equity-debt-arbitrage asset allocation; or close-ended capital protection funds, and much more.
5. Others
a. Arbitrage funds: For more on arbitrage funds, please read the following posts:- Baffled by Arbitrage Funds? Here's the simple explanation.
- Arbitrage funds : Excellent way to park short-term money
b. International or Global Funds: These invest in international markets. Given the diversity of choices, there are many kinds of international funds e.g. Location-specific (US, China, Emerging Markets, Asia, etc.), Asset-specific (Agriculture, Gold, Mining, etc.), and more.
This wide canvas of schemes from mutual funds, is indeed a boon for the investors. Each person can create a portfolio that is a perfect match to his/her financial profile.
Conservative investors can choose debt funds. Debt funds are also good for the investors in higher tax brackets; or those with limited investment time-frame. Equity funds are apt for the aggressive investors. Moderate-risk investors would find both comfort and returns in the hybrid funds. A bit of gold and international funds help in diversifying the portfolio.
In addition to this unlimited choice, following benefits make the Mutual Funds an excellent investment option:
- Professional Management
- Instant Diversification
- Day-to-day monitoring
- Tax friendly laws
- Highly liquid
You are missing a lot, if you are not into mutual funds.
