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What are the different types of funds available for investment ?

August 7, 2009

The different types of funds available for investments are

Debt Funds

Debt Funds invest mainly in debt instruments, government securities and money market instruments. Hence they are relatively safer than equity funds. At the same time the expected returns from debt funds would be lower.

Gilt Funds

Gilt Funds are debt funds, which invest only in Government Securities and hence have zero credit risk. However it does involve Interest Rate Risk.

Liquid Funds

Liquid Funds are debt funds, which invest in short term papers, with maturities usually not exceeding 180 days and hence are safe from interest rate risk.

Balanced Funds

Balanced Funds invest in a mix of equity and debt investments normal 60 to 40 in either equity or debt and vice-versa. Hence, they are less risky than equity funds, but at the same time provide commensurately lower returns. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but is looking for higher returns than those provided by debt funds.

Marginal Equity Funds

Marginal Equity Funds are funds which have main investment of at least 75% in debt instruments & the balance in equities. These funds will get you the security of Debt with the flavor of equities.

Equity Funds

Equity Funds invest mainly in the stock markets and attempt to provide investors the opportunity to benefit from the higher returns which stock markets can provide. However they are also exposed to the volatility and attendant risks of stock market investments and hence should be chosen by investors who have risk taking capabilities. Sectoral funds are specialized equity funds, which restrict their investments only to shares of a particular sector and hence, are riskier than diversified equity funds.

Index funds

Index funds constructed to match or track the components of a market index such as the S&P 500 Index. An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. Investing in an index fund is a form of passive investing. The primary advantage to such a strategy is the lower management expense ratio on an index fund. Also, a majority of mutual funds fail to beat broad indexes such as the S&P 500.

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