Mutual funds can be referred to as the accumulation of money from multiple investors who wish to invest and grow their money through investment. This corpus is managed by professionals who invest on behalf of the investor in various assets classes, depending upon the type of mutual funds and profits & losses earned over a period of time is shared with the investors.
Types of Mutual Funds in India
Equity Funds
These mutual funds invest in the equity market, and the primary object of the fund is to offer maximum returns on investment to the investors. These mutual funds are the high-risk investment, and its performance is linked with the performance of the stock market. These mutual funds are well-suited as a long-term investment.
Sector Funds
Sector funds are mutual funds that invest exclusively in the shares of companies that a selected sector or industry. For instance, a mutual fund might opt to invest only within the tech sector or the oil industry. While these funds can offer high returns, these are also deemed as high risk due to a lack of diversification of investment.
Index Funds
Index funds are mutual funds that invest in the pattern of the market indices, such as the SENSEX, NIFTY, etc. The NAV of these funds can rise and fall based on the performance of the market indices.
Tax Saving Funds
Tax saving mutual funds offer investor tax benefit under section 80C of the Income Tax Act, 1961. Investment in these mutual funds can offer taxpayer rebates of up to Rs. 1.5 lakhs under u/s 80C, thereby reducing their overall taxable income and tax liability. These mutual funds are suitable for individuals who wish to invest for the long-term and avail of tax-saving benefits.
Debt Funds
These mutual funds invest mostly into debt or fixed income securities such as debentures, government securities, corporate bonds, commercial papers, and other forms of money market instruments. Debt funds are suitable for investors who have a low-risk appetite or are seeking a steady regular income
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