Given the plethora of mutual fund schemes in the market, investors must be careful in choosing. In the first of a four-part series, investment and financial advisor Sanjay Matai offers an overview of the types of MFs, noting the risks and benefits.
Mutual funds are an indirect investment wherein you hand over your money to a professional fund manager to invest it on your behalf.
Therefore, when you want to buy a mutual fund, you have to first decide where you want your money to be invested - equity, debt or gold / commodities (and in future, maybe also real estate, silver, etc).
So the first step towards investing money in a mutual fund is to understand the different types of mutual funds that are being offered by asset management companies (AMCs).
AMCs, by the way, are trusts that hold and invest the money collected from the public in a fiduciary capacity.
Given that there are many asset classes and sub-classes, you will come across many different types of mutual funds. (ETFs or exchange traded funds are functionally the same as normal mutual funds, though structured and created differently. For now, we may just look at functionality and ignore the structure aspect.)
The mutual funds presently available in India can be broadly classified into (a) the equity segment, (b) the debt segment and (c) others.