The dictionary meaning of word mutual is to come together for common objective or cause, in case of mutual funds the common objective of people investing in mutual funds is to make money from investments. Majority of people know only two types of mutual funds that is open ended fund which remain open for buying and selling for unlimited period of time and close ended mutual funds which remains open only for specific period of time after which it gets closed and investor cannot sell his or her units until it opens again, apart from these two there are many types of mutual funds, let’s look at some of them –
- Growth Reinvestment Fund – In case of this fund the investor does not receive any periodic dividend from the mutual fund rather the dividend amount is reinvested into the mutual fund, this type of mutual fund is ideal for those investors who do not want constant income and are looking for capital appreciation.
- Commodity Mutual Fund – Commodity mutual fund typically invest their corpus into various commodities like gold, silver, crude, copper, agriculture related commodities and so on. This type of fund is ideal for those people who want to diversify their portfolio but do not have any expertise in commodities market.
- Money Market Mutual Fund – Money market mutual funds invest their money in debt instruments like Treasury bill, commercial paper, certificate of deposits and so on. The advantage of money market mutual fund is that they offer slightly higher return than typical saving bank account and also they are highly liquid and less risky if one compares it with equity funds.
- Growth Fund – Growth fund as the name suggests invest the money in those stocks which are likely to give higher returns than normal market return. Mid-cap companies and small cap companies form the major chunk in the portfolio of money market mutual fund manager. It is ideal for those investors who do not want constant income in the form of dividend rather they are interested in capital appreciation and high returns from their investment.
- Fund of Funds – Funds of funds is that mutual fund which does not invest directly rather it invests its funds into other mutual funds. In other words it indirectly invests its funds into stock market and other financial markets through mutual funds.
- Gilt Fund – Gilt funds are those mutual funds which invest money into only government backed debt instruments and hence they are the safest in terms of risk but the return on investments are low when one compares it with other kinds of mutual funds.
- Income Fund – Income funds are those which invest the money in blue chip companies which pay a regular dividend and also in corporate bonds of the companies so that the investors who have invested their money can get constant income or return from their investment. Income funds are ideal for old age people who prefer constant income rather than capital appreciation.
- Balanced Funds – Balanced funds invests money in both equity as well as debt market so that investors get high returns from equity market and also get the safety of debt market. This type of fund is ideal for those investors who do not want take too much risk which is present in a pure equity mutual fund and also do not want very low return which is the case with pure debt funds.
- Index Fund – Index funds are those funds which invest and imitate the performance of any market index so for example if an index fund is imitating the Dow Jones Index then it will invest its funds in all the stock of Dow Jones index in the proportion of their weight in Dow Jones Index.
- Country Fund – Country fund are those which invest the money in other countries stock and debt market therefore they are more risky because apart from normal risks they also have added risk like geopolitical risk, exchange rate risk and so on. This type of fund typically invests in emerging markets where growth rate is high and these funds try to give superior return to investors by investing in high growth economies.
As one can see from the above that mutual fund is of many types and before investing in any mutual an investor should evaluate his or her requirement in term of return and risk taking capacity and then select the mutual fund for investment.