Thursday, 16 December 2010

Diversify your mutual fund investment

A mutual fund is a fund which is pooled the investor’s money and invests in stocks, Money market instruments, bonds and other financial instruments to make grow the money collectively by professional fund manager. Generally mutual funds can be classified into three types according to the financial instrument it is invested in. They are Equity funds, Debt funds and balanced funds.

Equity funds are the type of mutual funds where there is a major portion of money (80% to 100%) invested in shares and stocks. Only a small portion (20% to 0%) of money is invested in secured money market instruments. These funds have a good return as per the increase in stock value. But the ups and downs of stock market will be reflected in these mutual funds. So these mutual funds have the great risk potential.

Debt Funds invest a major portion of money in secured corporate debentures, bonds and money market instruments. These funds do not have much risk when compared to equity funds. They are also known as Liquid Funds or Liquid Plus funds. If you are not ready to bear risk with your hard earned money you can invest in this type of mutual funds. It gives you a steady growth or income.

Balanced Funds try to balance the nature of both equity funds nd debt funds. These funds inveset in equity and debt instruments in pre-defined proportions which are decided at the time of inception of the fund. These Mutual funds give a balanced return because it has the nature of both equity and debt funds.

Almost all mutual funds are managed by experienced fund managers and they try to get the maximum benefit for the investors. But my opinion is that you make a proportionate investment in all these schemes so that to reduce the risk and balance your investment portfolio. If you lose in one scheme you can get benefit in another scheme.

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  1. It's good to see a real debate online Great information! I’ve been looking for something like this for a while now. Thanks!

  2. [...] investor can enjoy the diversification of investments. An individual trader cannot make that much diversification in investment and the benefit also will be less. This does not reducing the careful selection procedure of high [...]