Mutual Funds is an investment tool for investors. In these funds, your money is invested in different assets such as stocks, bonds, and commodities. If you are planning on owning a house, buying a car or anything, mutual funds serve you all your needs. It is a simple and effective way to save Income Tax.
Advantage of Mutual Funds:
- Diversification: There is diversification in these Funds. It allows you to invest in different types of assets and securities for good return.
- Liquidity: Because of its liquidity nature, investors can in or out of the market at any point of time.
- Professional Management: These Funds are professionally managed and regulated by SEBI or Security & Exchange Board of India.
- Low cost or Affordable to everyone: In Mutual Funds, anyone can invest, from an average person to a big firm. Therefore, you can start investing in mutual funds at a low cost of Rupee 500 or 1000.
- Systematic and easy to process: In mutual funds investment, the profit is very high as well as the risk is equally high. So by a systematic way of planning, you can achieve your needs and goals.
Types of Mutual Funds:
-> Equity Funds:
An equity is a share, fund or asset of a company. In these funds, investors invest your money in different assets and shares of various companies. The structure of Equity Fund is both open-ended and closed-ended.
-> Debt Funds:
It is a fixed rated income-earning fund. In these funds, investors invest on Government Securities or Bonds, Money Market Instruments, and Treasury Bills. Debt fund also works as a tax-efficient fund.
-> Hybrid Funds:
Hybrid Funds also knows as Balanced Fund. This fund is a combination of equity, bonds, and cash. Investment in Hybrid Fund provides both growth and income in one mutual fund.
-> Money Market Funds:
Money Market Funds are those funds where we invest in a money market or securities. Corporate Commercial Bills, Commercial Papers, Treasury Bills, and Certificate of Deposit also come under these Mutual Funds.
-> Tax Saving Funds:
ELSS or Equity Linked Savings Scheme comes under Tax Saving Funds. Investment in these funds offers a tax deduction to investors under section 80C of Income Tax Law.
There is two structure of Mutual Funds namely:
Open-Ended Funds: In open-ended structure, you can withdraw your investment at any point in time and get your refund.
Close-Ended Funds: In close-ended funds, it’s just opposite. You can’t withdraw or close the scheme before maturity.