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A Mutual Fund is not a one size fits all product


Question             :  “Where have you invested your savings?”

Answer                 :  “X amount in shares, Y amount in Fixed Deposits, Z amount in Mutual Funds”

Question             :  “What type of mutual funds have you invested in?”

Answer                :   “I am not exactly sure and don’t remember the names now. But these were    recommended by a friend who is very good with finance and I have all the details on an excel sheet”

The second question  is likely to evoke similar responses from most people. Over the past few years mutual funds have been growing in popularity, thanks to the aggressive marketing and features like ease of investing, market linked returns and liquidity. While this has ensured that most people have a significant exposure to mutual funds in their portfolio, most of them are not aware of how these mutual funds differ based on their investment objective, liquidity, tax efficiency, risk and return profiles.

Merely investing in a Mutual Fund doesn’t help, it is important to choose the right one for you. The table below is a ready reckoner for the different types of mutual funds and the target audience.

Fund Type Risk Investment Objective Target Investor Popular funds in this category
Diversified Equity Funds High Capital appreciation over long term by investing  in equity/stock market  across various sectors Who wants equity exposure but is not bullish about/or favour any particular sector HDFC Growth Fund, Templeton India Prima Fund, Reliance Vision Fund
Sector Funds Very High Invest in equity shares of a particular sector Who is extremely bullish about and wants to invest in a sector ICICI Pru FMCG Fund, Reliance diversified power, UTI Banking Sector
Index Funds Medium Follow the same investment pattern as popular market indices like BSE Sensex, NIFTY etc Who wants equity exposure but with the least amount of risk. Birla Sunlife Index Fund, SBI Magnum index fund, UTI Nifty Index Fund
Tax Saving Funds Medium Equity based and offer tax benefits under section 80 C of income tax act. Seek tax concessions and rebate and a tax free capital appreciation over long term HDFC Tax Saver, ICICI Pru tax Plan, Fidelity Tax Advantage fund
Debt/Income Funds Low Invest in high rated fixed income instruments like bonds, Govt. securities etc Seeks capital preservation and regular income Birla Sunlife Income Plus, HDFC High Interest, Templeton India Income Fund
Gilt Low Invest in Central and State Government Securities Risk averse long term investors DSP Blackrock Govt. Sec. Fund, Fidelity flexi gilt, HDFC Gilt
Balanced Funds Medium Invest in equity and debt instruments in some proportion Who wants steady returns with moderate risk HDFC Prudence, ICICI Pru Balanced, FT India balanced
Liquid/Money Market Funds Low Highly liquid money market instruments of a very short duration from 1 day to 90 days Who wish to park their funds for short term with relatively higher returns than savings bank and short term fixed deposits Fidelity cash fund, HDFC Liquid Fund, Birla Sunlife cash plus
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