Types of Mutual Funds
Mutual fund is an umbrella term that encompasses a large variety of investment options for the investor to choose from. While selecting the mutual fund category to invest in it is important for an investor to consider various factors such as income, age, risk profile, end goals, etc.
Equity Fund
The largest category is that of equity or stock funds. As the name implies, this sort of fund invests principally in stocks. Within this group is various sub-categories. Some equity funds are named for the size of the companies they invest in small-, mid- or large-cap. Others are named by their investment approach: aggressive growth, income-oriented, value, and others.
Fixed Income Fund/Debt Fund
A fixed income mutual fund or the Debt fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments. The idea is that the fund portfolio generates interest income, which then passes on to shareholders
Balanced Funds
Balanced funds invest in both stocks and bonds to reduce the risk of exposure to one asset class or another. This fund's goal is asset appreciation with lower risk. However, these funds carry the same risk and can be as subject to fluctuation as other classifications of funds.
Money Market Fund/Liquid Fund
The money market consists of safe (risk-free) short-term debt instruments, mostly government Treasury bills. This is a safe place to park your money. You won't get substantial returns, but you won't have to worry about losing your principal. A typical return is a little more than the amount you would earn in a regular savings account.
Income Funds
Income funds provide current income on a steady basis. These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity in order to provide interest streams. While fund holdings may appreciate in value, the primary objective of these funds is to provide steady cash flow to investors.