A Basic Understanding of Investing and the Types of Mutual Funds

February 21, 2015 Posted by admin

Finance, this is a world that you feared when you were in school and college as it meant, tables columns and figures that would go above your head. But as you grow older, you realise the importance of it and why you should make it a point, to not only keep track of your funds but to also plan, to make sure that they grow and multiply in the long run.

You realize that it is not only important to save a part of your income, but that it is equally important to invest it wisely. In this manner you can reach your financial goal in good time and also have a regular income plan, for your golden years. Now for a first timer this can be a little nerve wrecking, as this is your hard earned money and with so many options available, how do choose the right one?

There are a number of articles and blogs which will tell you about the basic rules of investing:

Invest keeping the financial goal in mind
Compare options before making a purchase
diversify and build a portfolio
Start investing early
Alter your portfolio according to market fluctuations

But let us take a look at the types of investments you can choose from, with the focus on mutual funds. Even under this head, the options are plenty:

Equity Funds: Basically speaking, this is a fund that is invested in the stocks of companies. It can be either active or passive.
Debt Funds: These are fixed income investments, that can produce both long-term and short-term gain
Diversified Funds: These funds have a number of securities in order to reduce the risk involved.
Money Market Funds: These are short-term securities that are liquid in nature and aim and maintaining a decent net asset value (NAV)
Sector Specific Funds: as the name suggests the money in these funds are invested in one particular industry.

Apart from this basic classification, mutual funds can be further divided according to the tax charged. There are; tax saving schemes like (ELSS) Equity Linked Savings Schemes. These work like pension plans that spread over a long period of time. Thus, tax benefits and rebates are offered on the funds in these schemes.

You must also consider open and close ended schemes. Open ended schemes can be redeemed at any point of time. While close ended schemes are close ended schemes can be purchased only from a security market.

In this manner, it is very important to study the market and understand which investment will help you achieve your financial goal in quick time. Accordingly, you can go ahead and make a purchase and enjoy the long-term benefits of the same.

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