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Understand Different Types of Mutual Fund

Understand Different Types of Mutual Fund

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Published by kirang gandhi
Understand Different Types of Mutual Fund
Understand Different Types of Mutual Fund

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Published by: kirang gandhi on Jun 15, 2010
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Understand Different Types of Mutual Fund
Mutual Funds
 Mutual Funds are pool of money collected from investors. The collected money will be investedin the markets such as equity, debt, money market, etc. Mutual Funds are managed byprofessionally qualified fund managers, the professionalism and experience of the fundmanager will help you in generating huge returns out of the investment. There are differenttypes of Mutual Funds in the market such as Stocks funds, Bonds funds, Money marketfunds, Balanced fund, Asset allocation funds, etc. Again these funds have sub category.Selecting the best one that suits your need is very important. This article is designed in such away to make you understand about all types of mutual funds. So that you will be able to chosethe best one.
Advantages of Mutual funds
 Below given are the major advantages of investing in Mutual Funds
 
Diversification
 
Professional Management
 
Greater convenience
 
High liquidity of Fund
 
Minimum Initial Investment
Types of Mutual Funds
 Mutual funds fall into the following major categories;
 
Stocks funds
 
Bonds funds
 
Money market funds
 
Balanced fund
 
Asset allocation funds
Stock funds
 As the name implies, stock mutual funds invest mainly in stocks. These stocks may be sold onthe Stock exchanges. Unlike bond funds the very objective of stock funds are long-term capitalappreciation. In bond funds, major income is generated from interest/dividend. However, stockfunds may generate modest dividends from the stocks in the portfolio and from short-termcash investments but major part of income is from capital appreciation. Meaning of capitalappreciation is very simple, the value increase/ price increase in the invested stock is calledcapital appreciation.
Types of Stock Funds
 There are five basic types of stock funds they are;
 
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Large Cap
 
Mid Cap
 
Small Cap
 
International
 
Sector
Large Cap Funds
Large Cap Mutual Funds are primarily invests in "Blue-chip" companies (large companies). Itmeans well-known industrials, utilities, technology, and financial services companies with largemarket capitalization. Large cap stocks are perceived to be less risky than small and mid capcompanies.
Mid Cap Funds
 Mid Cap Mutual Funds are primarily invests in companies with relatively small marketcapitalization. The market capitalization of companies where mid cap mutual funds areinvesting will be smaller than large cap and larger than Small cap companies. Mid caps aregenerally considered more risky than large cap stocks but have a higher return potential.
Small Cap Funds
 Small Cap companies are primarily invests in emerging/budding companies. Small caps aregenerally considered as the riskiest fund compared to other two types of funds but it carries theexpectation of higher returns. Small cap funds are subject to greater volatility than those inother asset categories.
International Funds
 International funds are primarily invests in stocks traded on foreign exchanges but purchased inIndia by Indian fund management companies. Apart from the basic risks, international funds aresubject to additional risks such as currency fluctuation, political instability and the potential forilliquid markets.
Sector Funds
 Sector Funds are investing primarily in specific industry sectors such as technology, financials,health, energy, etc. Sector funds focus their investments on companies involved in a specificindustry sector. Sector Funds involve a greater degree of risk as it doesn’t diversify theportfolio.
Bond funds
 Bond funds invest in various types of bonds - issued by corporations, municipalities, and thegovernment of India. Bond mutual funds are designed mostly to provide investors with a steadystream of income versus.
 
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Types of Bond Funds
 There are three basic types of bond funds.
 
Government
 
Municipal
 
Corporate
Government bond funds
 Government bond funds primarily invest in bonds issued by the government of India. Investingin Government bond funds will be safe compared to any other funds because India Governmentis the authority issuing the bonds. These funds provide relatively decent returns.
Municipal bond funds
 Municipal bond funds invest primarily in municipal bonds issued by state and local governmentsand their agencies to fund projects such as schools, streets, highways, hospitals, bridges,etc. Municipal bonds can be insured or non-insured securities.
Corporate bond funds
 Corporate bond funds are those funds in which the invest I made in bonds issued by corporatesto fund their business activities. These funds are relatively more risky than other two forms of funds and also offer an opportunity to earn greater returns.
Money market funds
 Money market funds invest in short-term securities such as Treasury bills. Most money marketfunds offer a higher rate of interest than bank savings accounts, and some are free of tax.Money market mutual funds are designed to be steadier than stock and bond funds. They aredesigned in such a way to provide steady income (dividend) on the investment amount, eventhough the yield may fluctuate daily.
Types of Money market Funds
 There are two major types of Money market funds such as;
 
Taxable
 
Tax-free
Taxable
 Taxable Money market Funds are primarily investing in short-term obligations fromcorporations. The returns from these funds will be free from tax.
Tax-free
 Tax-free Money market Funds are primarily investing in short-term obligations fromgovernment entities. Returns from these funds are free from tax.

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RamaKrishna Vadlamudi added this note
Dear Mr Gandhi, Thanks for publishing a clean, and clutterless with basic information guide on MUTUAL FUNDS. Pleas keep up the good work...RAMA KRISHNA V
RamaKrishna Vadlamudi added this note
Dear Mr Gandhi, Thanks for publishing a clean, and clutterless with basic information guide on MUTUAL FUNDS. Pleas keep up the good work...RAMA KRISHNA V
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