Elevate Your Portfolio: The Impact of Mutual Funds on Your Investments

 Introduction:

Most of us have seen the ads that are telecasted in the TV’s, in the hoardings around the city about Mutual Funds and might have wondered what exactly does the Mutual Funds mean? Investing in the stock market can be intimidating, especially for beginners. However, mutual funds offer like a totally hassle-free way for individuals to enter the world of investments and grow their wealth. In this comprehensive guide, we will totally break down the fundamentals of mutual funds, explore different types of funds, and shed light on how they can help you achieve your financial goals. So, basically Mutual Fund is a type of investment in which many such organisations pool money from different investors and invest the money in the securities such as stocks, bonds, or other assets.

 

How Mutual Funds Actually Work?

For example, In the Stock Market, you take your own decisions to invest in particular companies, you have expertise in that and you have the enthusiasm to invest in it. But in the second category i.e. in the Mutual Funds, you're not really bothered to explore things, you better hire a professional and he will take decisions for you. That's exactly what a mutual fund does or works. A Mutual Fund is managed by a professional fund manager, who selects the securities according to the fund’s objective and strategy. By investing in a mutual fund, investors can benefit in various aspects like diversification, professional management and access to a variety of asset classes. Basically you give your money to Asset Management Company and many people like you do so and that company invests all the money collectively at different places. By this there is a diversification of investment which is indeed an advantage. HDFC, HSBC, ICICI, Aditya Birla, Reliance, TATA are the few examples of companies and banks who have started their own asset management company.

 

Types of Mutual Funds

Now that we've covered the core benefits of mutual funds, let's explore the various types. We can divide this in the 3 categories. Namely,

·        Equity Mutual Funds

·        Debt Mutual Funds

·        Hybrid Mutual Funds

 

1. Equity Mutual Funds

An Equity Fund is a Mutual Fund Scheme that invests predominantly in shares/stocks of companies. They are also known as Growth Funds. Equity Funds are either Active or Passive.  In an Active Fund, a fund manager scans the market, conducts research on companies, examines performance and looks for the best stocks to invest. In a Passive Fund, the fund manager builds a portfolio that mirrors a popular market index, say Sensex or Nifty 50. Generally, in this type of mutual fund, the risk is high, so is the income.

 

2. Debt Mutual Funds

 

Debt Mutual Funds are those mutual funds which are invested on the debt instruments  such as bonds, debenture, certificates of deposits. A debt fund is a mutual fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation. Debt funds are also referred to as Income Funds or Bond Funds.Debt funds invest in either listed or unlisted debt instruments, such as Corporate and Government Bonds at a certain price and later sell them at a margin. The difference between the cost and sale price accounts for the appreciation or depreciation in the fund’s net asset value (NAV). Let’s assume, your debt fund owns a security that yields 10 % interest. If the interest rate in the economy falls, new instruments issued in the market would offer this lower rate. To match this lower rate, there would be an increase in the prices your fund’s underlying instruments as they have a higher coupon (interest) rate. As a result of the increase in the debt instrument’s value, your fund’s NAV, too, would increase.

 

3. Hybrid Mutual Funds

 

Hybrid mutual funds, also commonly known as well balanced funds and stuff, are investment funds that combine like different, asset classes within just one single portfolio and everything. The primary objective of hybrid funds is to totally provide investors with a super diversified investment strategy by blending both equity and debt instruments. This combination does aim to offer a bit of a balance between capital appreciation and income generation and what not while managing overall portfolio risk or whatever. Hybrid funds, like, you know, are designed to cater to investors with varying risk tolerances and investment goals and stuff. So, hybrid mutual funds are all about this whole, like, combining and mixing of different assets and things, and that can totally work out pretty well for investors who want a bit of a diversified strategy. It's like, you've got these equity and debt instruments and they blend together in a way that's supposed to give you both capital appreciation and income and make sure your overall risk is managed. And the great thing is, with hybrid funds, you've got options for different risk levels and investment goals and stuff. So yeah, if you're looking for a bit of a mix and match kind of investment approach, hybrid mutual funds might just be the thing for you and everything.