A Mutual Fund For Every Need.
All of us have different financial needs, and there is a mutual fund for every need.
Mutual fund makes a good numbers of things easy for us.
Apart from expert’s research on an investment, diversification is one such thing, which mutual fund makes it easy for us.
Since we can’t be sure of which investment would work out as we planned or the chances that it would be profitable as we thought it out to be. To mitigate this uncertainty, the mutual fund manager makes sure that the mutual fund is making investments in different assets. The assets can be of the same type. (ICICI Bank and HDFC Bank).
By this, a Mutual fund makes sure that the risk of losing money is less by increasing the number of investments to hold.
Diversification and expert research on the investments is good, but what about the needs that every mutual fund investors have. And we know that everyone has their own set of needs or financial goals. Some of us need a fixed income/return from the investments, some have a short term goal of buying a car, some want their investment to take care of children higher education and some simply want to get wealth and stay wealthy.
Different investment products address this. If you want low risk with moderate return on investment, then Debt is the best suited investment. If you are into traditional investments, then Gold and Real Estate is for you. But you need exponential return but don’t the high risk and have patience to hold the investment for 10+ years, then equity is the best investment option.
Depending on this same paradigm, mutual funds are broadly classified into these four major investments.
Debt funds
Equity funds
Gold funds
Debt Mutual Fund:
Debt mutual funds mostly buy debt papers issues by the government or corporates or both. Government and corporates need money to run the government or expand the business, so they collect the debt by issuing the debt papers. This debt paper is usually referred to as bonds in the market.
Depending on the needs, government and corporates issue bonds subjecting to a time period. Usually this works just like the Fixed Deposit. The interest is paid regularly till the maturity period, and the principal amount is paid after the maturity period.
On the basis of the maturity period and the type of bonds, the debt funds are further classified into liquid funds, ultra-short-term funds, medium-term bond funds, long-term bond funds, corporate bond funds and others. We will get into the details later when we discuss extensively on Debt as investment in your portfolio.
Who should invest in Debt Funds?
Debt mutual funds give moderate returns which are usually above the Fixed Deposits. Just as in FDs, people who need regular income from the investment and low risk of losing the principal amount should invest in debt mutual funds.
And Mostly, people who are retired or close to retirement should invest more in debt than in other type of investment products. Since the income sources would be less during retirement and risk of losing money cannot be afforded.
Gold funds:
This should be self-explanatory, Gold funds invest in gold. The fund will buy the physical gold on our behalf and track the price of gold. By this, you won’t have to worry about the hassle of buying the pure gold, making charges and no worry of losing it on theft.
Another benefit of gold mutual funds is we can invest in gold on the monthly basis rather buying it with lump sum money.
But we will incur the costs of mutual funds like Demat account charges, expense ration(annual charges by mutual fund, this is not limited to gold funds but for every type of fund.). These costs are mostly applicable to every mutual fund.
So if you are into gold then gold funds, are a great option.
Who should invest in Gold Funds?
Gold funds are not the only option to invest in Gold, other alternatives include Sovereign Gold Bond and gold bonds by government. These are considered to be much better than Gold mutual funds, as the cost of the gold bonds by government is much less and there is a guarantee associated to it by the government.
So, why own gold in the first place? Gold is a good financial instrument to tackle inflation, if the making charges are avoided. Gold helps preserve a part of the wealth against inflation.
Equity mutual funds are the most exciting part of mutual fund. This type of mutual fund is the most bought one too. Giving us most exponential returns in the long run. There is so much to equity mutual fund. So let’s discuss it comprehensively in the next week’s article.
Until next time,
Peace out!