From Equity to Debt Funds: Navigating Different Types of Mutual Funds
Equity Funds
Equity funds are those mutual fund instruments where your money is invested in company shares. So, they carry some risks as your returns would depend on how the company’s stock performs in the stock market. These are typically ‘high risk high reward’ options that are suited to investors with a moderate to high risk appetite. Equity funds can be divided into several other categories, such as :
- Small-Cap funds
- Mid-Cap funds
- Large-Cap funds
- Equity Linked Savings Scheme
There are other categories too. Investors may consider investing in equity mutual funds for long-term goals, provided their portfolios can tolerate the increased risk associated with such investments.
Debt Funds
Debt funds are mutual funds where your money is invested into various fixed-income securities, such as government securities, treasury bills and corporate bonds. Debt funds are highly stable options that have low risk associated with them. Investment in debt funds is ideal for those looking for a regular and stable income. However, the returns do not tend to be as substantial as in equity fund investments. Debt funds can be divided into further categories:
- Liquid funds
- Low-duration funds
- Overnight funds
- Credit risk funds
- Gilt funds
Hybrid Funds
In hybrid funds, as the name suggests, capital is invested into both equity funds and debt instruments. Splitting the capital into the two kinds of funds can ensure that there is a balance between the risk and the returns. Such investment in hybrid funds can be varied or fixed depending on the policies of the asset management company (AMC) or fund house managing the portfolio. Hybrid funds can also be divided broadly into two distinct types. They are:
- Aggressive funds
- Balanced funds
Depending on market conditions and overall investment objectives, investors can select the appropriate type of hybrid fund. Risk appetite plays a crucial role in determining the allocation of equity instruments within the portfolio.