A mutual fund is a type of investment that pools investors ‘ capital to invest in stocks, bonds, treasury bills and the like. A professional fund manager with appropriate financial market qualifications and experience chooses how to spend the pooled capital on the investors ‘ behalf.
There are different categories of mutual fund schemes available from which investors can select on the grounds of many parameters such as;
- Income
- Liquidity needs
- Age
- Liquidity needs
- Risk appetite
- Financial Goals
A mutual fund is available in different categories; each category has its distinctive features of danger & return. Some funds have nearly zero hazards and some high-risk equity funds have yielded more than 20 percent of their investors ‘ annual profit. To name a few categories of direct mutual funds, we have provided a list below beginning from low-risk debt funds to high-risk, low-cap fund returns. Just have a look.
- Liquid funds
- Ultra short term funds
- Arbitrage funds
- Accrual funds
- Capital protection oriented funds (CPOF)
- Monthly income plans (MIP)
- Balanced funds or Hybrid funds
- Large-cap funds
- Mid-cap funds
- Small cap funds
Today we cover in this article one of the most common categories of mutual funds that is currently the option of many economic planners. Balanced or hybrid funds.
A Balanced Fund invests in a diverse portfolio. Typically, these funds invest in a combination of equity and debt stocks. The shares of different businesses, in various industries such as a large-cap, mid-cap and small-cap, are investing in the equity part. For debt part, they invest in debt securities such as government bonds, reserve bank treasury bills, municipal bonds, corporate trade documents, debentures non-convertible, bank deposit certificates and comparable securities.
There are primarily two categories of balanced funds:
- Debt-oriented balanced funds also known as Monthly income plans (MIP)
- Equity-oriented balanced funds
Debt-oriented balanced funds, also known as Monthly income plans (MIP) – Debt-oriented, balanced mutual funds mainly invest in debt instruments. These funds are chosen by the investors who want a relatively safe route than investment in shares, but who at the same moment may want to appreciate a particular stock taste so that the rally in equity markets does not fail. These mutual funds based on debt, such as the Monthly Income Plan (MIP), are investing approximately. 75% -80% of their total assets gathered in debt securities such as public bonds, treasury bills, trading documents, etc.
Equity-oriented balanced funds- Equity-oriented balanced funds strive to attain long-term wealth appreciation through equity investment and create short-term interest income through investment in debt securities such as government bonds, business documents, debentures, etc. and produce excellent yields through an ideal combination of equity and debt portfolio. The fund manager allocates funding to investors in equity and debt instruments in distinct ratios depending on the fund’s investment mandate.
Whenever the fund manager invests 65% or more of the fund’s assets in equity and remains in debt and money market tools, it is called an equity-oriented fund. Moreover, a debt-oriented fund is called an asset allocation of 60 percent or more in debt and remaining in equity. For liquidity purposes, some portion of the fund would also be invested in cash and cash equivalents to meet mass sell-off, if any, during market turmoils, say 2% 3%. In equity-oriented balanced assets, 65% allocation in equity shares is created to qualify for long-term capital gain (LTCG) advantages when an investor redeems his savings after a year.
