What are Mutual Funds & Top Mutual Fund to Invest? Investors can choose from a variety of investment options. Investors can also benefit from mutual funds because they provide solid investing options. However, they, like any other investment, come with its risks. With a goal of making investors more aware of how mutual funds work, an attempt has been made to present information that may assist investors in making investment decisions.
What is a Mutual Fund? Mutual fund is an investment that allows investors to invest in securities such as stocks, bonds, money market instruments, and other assets by pooling money from multiple investors. Professional money managers take care of mutual funds, allocation of assets, and generation of capital gains or income for the fund's investors. A mutual fund portfolio is built and managed to meet the investment objectives indicated in the prospectus.
Types of Mutual Funds Mutual funds are divided into three categories based on their asset allocation and equity exposure:
Equity Funds As the name implies, invest primarily in equity shares of companies of all market capitalizations. When a mutual fund invests at least 65 percent of its portfolio in equity instruments, it is classified as an equity fund. Thus, among all mutual fund classes, equity funds have the potential to provide the largest returns.
Debt Mutual Funds When a mutual fund invests at least 65 percent of its portfolio in debt securities, it is classified as a debt fund. Debt mutual funds primarily invest in debt, money market, and other fixed-income instruments like Treasury bills, government bonds, certificates of deposit, and other highly rated assets.
Hybrid or Balanced Mutual Funds Mutual funds that are balanced or hybrid invest in both equities and debt products. The main goal of hybrid funds is to diversify the portfolio and balance the risk-reward ratio. These funds are an excellent method to diversify your portfolio.
What Are the Benefits of Investing in Mutual Funds?