Types of Mutual Fund Based on The Nature of Investment

 ‘Half-knowledge is worse than ignorance’ -Thomas B. Macaulay

Before making any kind of investment in mutual funds, it becomes very important to have in-depth knowledge of its types and what each of them has in store for investors. The investment objective is the deciding factor in any portfolio of a mutual fund scheme.

For example, an investor Akshay wants to invest in an equity fund so as to obtain capital appreciation via investment, whereas another investor Anjali wants to opt for the hybrid mutual fund so as to diversify the risks. So, the portfolio which will be prepared by the fund manager in both cases will be different, owing to the difference in their investment objectives.

Let us now move ahead and have surficial knowledge about the types of a mutual fund based on the nature of the investment. The types are mentioned as followed- 

1.  Equity fund - Funds that usually invest the pooled money in equity shares of a company are known as equity mutual funds. The securities of equity mutual funds are listed on the stock exchange.

Some examples/ types of equity funds include- Market segment-based funds, sector funds, thematic funds, strategy-based schemes, dividend yield schemes, value funds, growth funds, etc. 

2.  Debt fund- Debt is a term used to depict the money borrowed by one party from another. The investments made in debt securities namely treasury bills, Government Securities, and Debentures are known as Debt funds.

Some examples/types of debt funds include Gilt funds, corporate bonds fund (on the basis of the issuer); liquid schemes, short-term debt schemes (on the basis of tenor); diversified debt funds, Junk bond schemes (on the basis of investment strategy), Overnight fund, Low Duration fund, etc.

3. Hybrid funds- Hybrid funds are basically those funds that invest in a combination of various asset classes such as stocks, cash, debit, and bond. They are often known as Balanced Funds.

Some examples/types of the same include- Debt oriented Hybrid Funds, Monthly Income plans, Capital Protected Schemes, etc. 

4) Solution-oriented Fund Schemes- The investment options which cater to the need of an investor in terms of specific goals are known as Solution-oriented fund schemes.

Here, the specific goal can be aimed at retirement planning, higher education of children, etc. Some examples/ types of the same include Retirement fund, Children’s fund, etc.  

OTHER SCHEMES-  

1. Index Funds- Often called exchange-traded funds are funds that tend to follow pre-set rules in order to keep a track of a specified pool of underlying investments.  

2. Fund of funds- Also known as an overseas or domestic fund, is basically a basket of funds that invest in other funds.  

3. Real Estate Fund Schemes/ Real Estate Investment Trusts-

●      Real Estate Mutual Fund- invests directly in assets of real estate, according to the rules and regulations specified by SEBI.

●      Real Estate Investment Trusts (REIT)- invests in assets of commercial real estate. These are mainly trusts that are legally registered with SEBI.

●      Infrastructure Investment Trusts (InvIT)- are trusts which are registered with SEBI and are known to invest in the infrastructure sector. 

How to Invest in Direct Mutual Funds?

Introduced in the year 2013 by the SEBI, Direct Mutual funds have gained popularity since then. Thus, if you have decided to invest in a direct mutual fund then it is indeed a great idea!

One of the most beneficial factors about the direct fund is that it ensures that the amount which you have to pay to the middlemen is saved. And, you can use that money in other productive work. Direct mutual funds involved no middlemen thus no commission as well.

Let us now address the elephant in the room, how to invest in a direct mutual fund. The process to invest in a direct mutual fund-

There are two modes to invest in a direct mutual fund investment, the Online and Offline mode. Now, once you have decided that you want to invest in the direct mutual fund the next step is to select the mutual fund in which you want to invest in and it also suits your investment needs at the same time.

It is very important to remember that the amount you want to invest in the scheme is based on your investment goals. You can either choose to go with SIP or lump sum deposits as well.

The Offline Mode-

Several investors feel comfortable going with the traditional route and investing in direct mutual funds through offline mode. The steps involved in the same are mentioned as follows-

 

1)    The very first step is to visit your nearest AMC office whose fund you have selected to invest in. Or, you can also choose to go to the local offices of RTAs like Cams and Karvy as they have mostly all the mutual fund houses registered with them.

2)    Once you are at the AMC or local office offices of RTAs or Karvy, you need to complete your KYC process if you are not compliant with the same.

3)    The document required for the KYC process is available at the AMC branch itself. Along with this, you have to carry a few documents namely, a self-attested copy of PAN, a self-attested copy of address proof, common application form (in case you take the route of SIP for investing directly).

4)    Once you submit all the required documents you need to give a cheque or demand draft in the name of the AMC after mentioning the amount you wish to invest.

5)    You will be allotted an account statement once the entire process is done.

Online mode-

A more convenient method is with the online mode where there is no hassle of visiting the AMC physically. The steps involved under this mode is as follows-

 

1)    At first, you need to take care of the KYC formalities here as well. The best thing is that it is a one-time process and it can be used across all platforms to invest in Direct Mutual Fund Plans.

2)    Now, if you decide to invest in the direct mutual fund via the asset management company website then you need to start with setting up an account with that AMC.

3)    Then you need to select the scheme available under the ‘direct’ plan type. After this, select the investment details like- SIP or Lump sum, demat or no demat, mode of payment, bank name, bank account number, IFSC, account type, and finally click the confirm tab.

4)    The next step is verification. For this, some AMCs need you to validate the submission form by an OTP.

5)    Do the payment and you are done.

 

Investing in the direct mutual fund is one of the most economically beneficial methods, to begin with. It is mainly due to the reason that it eliminates the additional costs often involved in mutual fund investment. So, compare the pros and cons of regular as well as direct investment plans and then accordingly make up your mind.