Types of Mutual Fund and Which Mutual Fund to invest -Details are here!

Hi All,

Welcoming you all.

Today, we will talk about types of mutual funds so that you may choose according to your need.

Basis brokerage or commission, mutual funds can be divided into two types:

• Direct Plan
• Regular Plan

Direct Plans as name suggests is direct, i.e. this plan can be taken directly by visiting mutual fund site or visiting their office, Hence, there is no intermediary, distributor or reseller involved and all your amount you pay goes towards your investment.

Regular plan is the opposite where any distributor, reseller or broker involved and a part of your investment goes in its commission.

So, it make sense to go for Direct Plan to save money and grow your investment more.

Basis type of investments, mutual funds are divided into two parts- Equity & Debt

Equity Mutual Funds

As the name suggests, equity funds invest in stocks of different companies. And again, they can be divided into large cap, mid cap and small cap.

Large cap mutual funds invest in top companies of India basis their market capitalization ( i.e. number of outstanding shares * price per share). These companies are top companies of India and hence, the risk is lowest in large cap companies.

Mid cap companies are smaller than large cap companies basis their market capitalization ( i.e. number of outstanding shares * price per share)  and small cap companies are smaller than mid cap companies.

Different mutual funds invest in different types as per the companies criteria explained above. So, if you are looking for decent returns with lowest risk large cap companies are best and you can choose for mutual funds which are investing in large cap companies.

Basis your risk appetite, you can invest is small cap mutual funds and mid cap mutual funds as well. Ideally, for a longer horizon of time they also provide good returns but the risk factor increases as the size of the company decreases.

This is for the obvious reasons as businesses which are there for more than 40, 50 years or more are more stable as compared to companies which are not that old. But it never means that small cap or mid cap funds are bad.

You may check their returns and go for them as well for a longer horizon of time.

Debt Mutual Funds

Rather than investing in stocks, debt funds invest in government securities, commercial papers , bonds etc. The return on debt funds are generally, lesser than equity funds as explained above but they are risky as compared to equity mutual funds as explained above. 

They are good for short term investments with a horizon of at least three years as they can give your returns more than traditional FD's or insurances.  

Hybrid Funds

As the name suggests, they are the combination of debt funds and equity funds and are generally, give your return more than debt fund and less than equity fund.  They are ideal for savings which are intermediate between short term goals and long term goals.

But for a longer horizon of time, risk does not matter much and it makes sense to invest in equity funds.

Please feel free for any doubt and you may post your queries, suggestion, feedback at hina.gupta19@gmail.com

Thanks