Funds: Major types of funds

The different types of funds you should know

Previously, we’ve looked at how you can properly read a fund’s fact sheet to find relevant information for your investment. Now, we’ll look into the major types of funds. Simply, the overarching theme which most (if not all) funds are under.

We’ll be quick for this one, but we’ll delve deeper into each category in our later articles.

Major types of funds

The classification here is a broad categorization of mutual funds based on their underlying assets and investment objectives. Let’s briefly elaborate on each of these types:

1. Equity Funds:



Objective: Equity funds primarily invest in stocks or equities of publicly traded companies. The goal is to provide capital appreciation over the long term.

Risk and Return: They are considered a higher risk compared to debt funds but have the potential for higher returns. Performance is influenced by the stock market.


2. Debt Funds:



Objective: Debt funds invest in fixed-income securities such as government bonds, corporate bonds, and other debt instruments. The primary aim is to generate regular income and preserve capital.

Risk and Return: Generally lower risk compared to equity funds, with returns often driven by interest rates and credit quality of the underlying bonds.


3. Hybrid Funds:



Objective: Hybrid funds, also known as balanced funds, invest in a mix of equity and debt instruments. The goal is to provide a balance between capital appreciation and income.

Risk and Return: The risk and return profile depends on the fund’s asset allocation. Aggressive hybrid funds have a higher equity component, while conservative ones have a higher allocation to debt.


4. Solution-oriented Funds:



Objective: These funds have a specific investment goal or time horizon, often linked to a financial goal like retirement or a child’s education. They may have a lock-in period.

Types: Retirement Funds, Children’s Education Funds, etc.

Risk and Return: The risk and return depend on the asset allocation strategy and the underlying investments, similar to hybrid funds.


5. Other Schemes:



Objective: This category may include a diverse range of funds that don’t fit neatly into the above classifications.

Examples: Index funds (which track a specific market index), Fund of Funds (which invest in other mutual funds), and Exchange-Traded Funds (ETFs) could fall into this category.

Risk and Return: The risk and return characteristics vary widely depending on the specific type of fund within this category.

Bottom line

It’s important to note that within each category, there can be further subcategories based on factors such as market capitalization (large-cap, mid-cap, small-cap), investment style (value, growth), and geographical focus (domestic, international, global). Investors should carefully evaluate their investment goals, risk tolerance, and time horizon to choose funds that align with their financial objectives. Additionally, reading the fund’s prospectus is crucial for understanding its investment strategy, fees, and historical performance.

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None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance.

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