Based on the time horizon, availability of funds, and the goals for financial planning, Mutual Funds are the best option to invest your money in a different class of assets like Equity, Debt, Gold and other instruments that come with both flexible and fixed options. Diversifying the portfolio and reducing the risk on single heavy investment is the purpose and essence for which the various groups of mutual funds came into existence. Finding the best out of the plethora of funds available to invest, is purely based on the personal investing goal and style to suit the financial requirements.
Exploring the many options available and making a confident decision to invest, should be done only after getting to know the different types of mutual funds from the huge array, and getting to know which funds suit best is important.
- Growth or Equity-Funds– Funds invested in Equity are called Equity Funds that carry the principal objective of capital appreciation over the middle or long-term. They are associated with high risk and are linked to the stock markets, any change in the stock and shares in the markets effects them directly, this type of funds are suited of long-term investment, within the different types of equity finds such as Index based fund, Sectoral specific funds, and diversified funds
- Diversified Funds-the investment is diversified and spread across many sectors and market capitalization, this type of fund is best suited for investors who want exposure to different sectors across the industry
- Sector Fund Investing in a particular sector or industry that gives a high rate of return come with a higher risk bracket, their performance has to be continuously monitored for cashing out when the fund is performing well.
- Index funds-these funds work on the similar pattern as the stock markets, the value of the fund varies in proportion to the benchmarked index, the NAV of the fund will vary according to the changes in the index
- Fixed Income Funds-they are predominantly based on the debt markets and the funds are invested in corporate bonds, securities, and other money market instruments, ideal for people who are looking for a regular income moreover they are not as risky as the Equity funds
- Liquid funds– they are investments that have high liquidity, and the time period of staying invested is very short as less as a day very suitable for corporate investors, financial institution, and businesses who are looking for short-term benefits.
- Exchange traded funds are backed by the physical holding of the commodity as they track the movements of the assets or commodity such as Silver and Gold throughout the day offering high flexibility.
Selecting the best out of the rest is based on the understanding of the fund and clearly understanding the history of the fund performance over a period, and how soon can they get to the good ROI for an investor, based on the several factors that influence the performance of the fund in the short term.