Equity Mutual Funds
Equity mutual funds are investment vehicles that pool money from multiple investors to invest primarily in stocks or equities.
The main goal of these funds is capital appreciation over the long term by investing in the shares of companies.
Fund managers actively select stocks based on various factors such as company performance, industry trends, and economic conditions.
Equity mutual funds come in various types, including large-cap funds that focus on established companies.
Mid-cap funds targeting medium-sized companies. Small-cap funds investing in smaller, emerging companies.
Additionally, there are sector funds that concentrate on specific industries, Index funds that track market indices, and ELSS funds offering tax benefits. While equity funds offer the potential for higher returns, they also carry higher risk due to stock market volatility.
Debt Mutual Funds
Debt mutual funds invest in fixed-income securities such as bonds, government securities, and money market instruments.
These funds aim to generate stable returns with lower risk compared to equity funds.
Fund managers select bonds based on factors like credit quality, maturity, and interest rates.
Types of debt funds include Liquid funds, Income funds, Gilt funds, and Credit Risk funds.
Liquid funds invest in short-term money market instruments, Income funds focus on generating regular income through bonds.
Gilt funds invest in government securities, and Credit Risk funds take higher credit risk for potentially higher returns.
While debt funds offer lower risk compared to equity funds, they are subject to interest rate risk, credit risk, and liquidity risk.
Hybrid Mutual Funds
Hybrid mutual funds, also known as balanced funds, invest in a mix of both equities and debt instruments.
These funds aim to provide a balanced approach by offering potential for capital appreciation along with income generation and risk mitigation.
Fund managers allocate assets between equities and debt based on market conditions, valuations, and fund objectives.
Types of hybrid funds include balanced funds, monthly income plans (MIPs), aggressive hybrid funds, and conservative hybrid funds.
Balanced funds maintain a fixed allocation between equities and debt, MIPs focus on generating regular income with a higher allocation to debt, Aggressive Hybrid funds have a higher equity allocation for growth, and Conservative hybrid funds prioritize stability with a larger allocation to debt.
Hybrid funds offer moderate risk compared to pure equity funds, striking a balance between growth potential and stability.