You may choose from among various investment vehicles available in the market so as to build your wealth. Some of the popular instruments include bonds, gold, real estate, stocks, insurance policies, mutual fund and annuities, among others.
A popular and well-performing instrument is mutual funds. Such a vehicle is attracting huge interest due to the numerous benefits it has to offer. It is easy to buy and sell and comes with a built-in diversification feature. You may also obtain higher returns over a period of time. Moreover, such an instrument comes with less or no lock-in period, thus making it easy for you to withdraw your funds during emergencies.
Types of mutual funds
A major advantage of mutual fund investments is that you may choose from a variety of options. Based on your risk profile and financial goals, you may select from among the following five types of funds.
- Money market funds
Money market funds invest in short-term securities such as treasury bills, commercial paper, Certificate of Deposit, and government bonds, among others. Financial institutions, governments, and large corporations generally issue such securities. As they are short-term securities, money market funds are also known as cash market.
- Equity funds
As the name suggests, equity funds is a mutual fund that invests in equities (also known as stocks). Such funds are generally categorised based on the investment style, size of the company, and holdings in the portfolio, among other factors. Some of the various types of equity funds are large-cap stocks, growth stocks, value stocks, mid-cap stocks, small-cap stocks, or a combination of the above.
- Balanced funds
Balanced funds involve both equities and fixed income securities. Here, the investments are split among various investment vehicles, and hence the risk is evened-out. You may, therefore, try to maximise your earnings by controlling the risk factor.
- Debt funds
Individuals who do not wish to take a risk may opt for debt funds. Such an instrument allows holdings in fixed income investments. Conservative investors may choose from numerous debt fund options such as monthly income plans, liquid funds, fixed maturity plans, gilt funds, and securitized products, among others.
- Indexed funds
An index fund is constructed on the basis of performance of a specific index, say Sensex or Nifty. Sensex has 30 companies in its index, while Nifty has 50 companies. Higher will be the returns of the funds if the index goes up, and vice versa.
You or your portfolio manager may make a choice from among the aforementioned types of mutual funds. You may consider investing a lump sum amount or through a Systematic Investment Plan (SIP). A mutual fund SIP facilitates regular savings coupled with higher returns due to the power of compounding. You may, therefore, achieve your financial goals and build a sizeable corpus systematically.