Mutual fund objectives

To invest properly in a mutual fund, you need to understand the types of mutual funds that are available to you. These include:

• Equity: Also known as growth funds, these invest exclusively in the stocks of domestic companies listed on the stock exchanges. These are categorized as high-risk funds.
• Money market: These are mainly meant for investors looking at short-term profits and easy liquidity. These funds are invested in money market instruments such as Treasury bills (T-Bills), Commercial Papers (CPs), Repurchase Agreements (Repo) and government securities. These are categorised as low-risk funds.
• Debt: These are also called income funds and provide fixed returns by investing exclusively in low-risk fixed income securities. Debt funds are typically low-risk funds.
• Hybrid or balanced: These funds invest in both fixed income securities (debt) and stocks (equities), thereby offering a balanced portfolio to investors.
Mutual funds are also hyphenated on the basis of closed or open loop structures.
• Close-ended: These funds have fixed maturities and cannot be easily withdrawn or closed before maturity.
• Open-ended: You can withdraw the investment at any point of time and get refunds within a week. More and more mutual funds are offering open-ended fund options nowadays.