Types of Mutual Fund India Schemes and Key Considerations

Mutual funds India offers investment vehicles that pool money from multiple investors to further invest in a diversified portfolio of securities. These funds, in turn, can be active or passive schemes managed by professional fund managers who make sound investment decisions on behalf of the investors. The pooled money is invested in a wide range of assets, such as stocks, bonds, money market instruments, and other financial instruments, based on the fund's investment objective.

Types of Mutual Funds India - There are a variety of mutual funds available in the market, here are the popular ones-

1. Equity funds: These funds invest predominantly in stocks, aiming for long-term capital appreciation. They carry higher risks but also offer the potential for higher returns.

2. Debt funds: These primarily invest in fixed-income securities like government bonds, corporate bonds, and money market instruments. They are considered less risky than equity funds and are suitable for conservative investors looking for regular income. Also, these are suitable for short-term investing also, such as a few days or months.

3. Hybrid funds: Hybrid funds, invest in a mix of equities and fixed-income instruments. They offer a balanced approach by combining capital appreciation and income generation.

4. Index Funds: These funds aim to replicate the performance of a specific market index, such as the Nifty 50 or the Sensex. They are passively managed and offer investors exposure to a diversified portfolio at a lower cost.

5. Tax-Saving Funds: These are called equity linked savings schemes or ELSS funds or tax saving funds, which offer tax benefits under Section 80C of the Income Tax Act 1961. They have a lock-in period of 3 years and provide an avenue for long-term wealth creation while saving taxes.

Key considerations for investors: Here are the factors a retail investor needs to consider before investing in any schemes offered by mutual funds India

a. Investment Objective: Investors should align their investment objectives with the fund's objective. For example, long-term capital appreciation, regular income, or tax savings.

b. Risk Profile: Investors should assess their risk tolerance and choose funds that match their risk appetite. Equity funds carry higher risk compared to debt funds, and sector funds have concentrated risks.

c. Performance Track Record: Evaluate the historical performance of a mutual fund by considering its returns over different time periods and comparing it with benchmark indices and peers returns.

Now, coming to the mutual fund which gives us dual benefits (tax savings + wealth creation), over the long term, we can highlight tax saving funds. They are diversified equity mutual funds which primarily invest in stocks of listed companies in a specific proportion based on the investment objective of the fund. The stocks are chosen from across market capitalization (Large caps, mid-caps and small caps) and industry sectors.

One should invest in tax saving funds for these reasons-

• Higher returns than traditional investments.

• Tax efficient returns.

• Least lock in period of 3 years.

• Dividend pay-out option, if you need regular income.

• Transparent and hassle-free investing process.

Based on the purpose or objective of investment, one can select the kind of mutual fund schemes they want to go for and invest accordingly.

Conclusion

In this read, we focused on the types of schemes offered by mutual funds India and specifically on tax saving funds like ELSS mutual funds. Investors looking to build a strong portfolio must explore these options and consult a financial advisor or mutual fund distributor for making the best investment decision.