Do you know that there are multiple products or schemes that are available for you to chose when you decide to invest in Mutual Funds?
Simply because, one size of the dress will not fit all. Some of us are thin, some medium and some are extra large..Isn’t it? Let us look at the various scheme options (dress sizes so to speak) that are available.
Monthly Income Plans famously known as MIPs that basically invest in debentures, debt instruments and have very moderate risk exposure, mostly on Interest earning capability.
Index Funds are another set of options that allow the investors to participate in the two indexes available to investors. While we may not be able to invest directly on these indexes such index funds basically are incarnation of these indexes which can be bought and sold through Mutual Funds. These are passive managed funds and hence the relationship to the return will be directly proportionate to the movement of the indexes. Sounds simple, right?
Growth plans – Simple to understand. When does growth happen? When someone is young, the growth proponent is fast and happening. True. Likewise, Growth plans majorly invest in Equities considering the investor profiles which would be the younger group. This is the best suited option for the long term investor who is clear about taking risks. This is why CAMS in a series of publications have suggested that long-term outlook and investing is essential for achieving outstanding results. Read all offer documents to ascertain the risks associated, before investing.
Balanced Funds offer balance of life and investing. Cool….Yes, they allow portion of your investment to be parked in Equity and Debt, where there is equilibrium of return and the risk. We would recommend this for a middle aged investor in the age group of 45- 55.
Fixed Maturity Plans are another investment option which is comparable to Fixed Deposits which manage your funds for a specific number of days and you get your investment back with returns. Since these also invest in debt securities, the returns could be probably higher than what your FD could give you.
Equity Linked Savings Schemes (ELSS) gives you double benefit – yes – while you get to invest in Equity Funds, you also get to reduce your taxable income to the extent of Rs 1 Lakh in a financial year by investing in them. Only catch is that these units are locked in for three years. This also enables the fund manager to invest the money in stocks which have higher yield potential with medium term outlook.
Arbitrages allow the mutual funds to encash on the difference of prices in multiple markets or price horizons. These are almost similar to debt funds in their risk profile however invest in equity and derivatives.
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