This article deals with types of mutual funds that are categorized by the specific sector the fund managers have selected based on observations and past performances.
These are mutual funds that are based on their specialty.
Sector Funds:
These funds are invested in a particular sector maybe because of the recent market activity or its performance. The returns obtained are from the performance of the companies in that particular sector alone. The investor’s portfolio will consist of companies only from the specified sector.
Index Funds:
These type of funds are invested in a particular index., for ex., BSE Sensex. These funds are diverse in their portfolio fund allocation and have low operational costs. But the returns in these kinds of funds is low compared to others.
These funds have a specific function to perform I.e., they help in efficient tax management and reduce market prediction errors.
These type of funds are best suited for pension planning or any other very long-term financial planning.
Fund of Funds:
This type of funds invest in other mutual funds, the investor returns usually depend on the performance of those funds. This type of investment is relatively risk-free since it averages the risks of other mutual funds, making it an attractive investment option for people who don’t want to take any risks on their hard earned money.
International Funds:
These funds are made in new emerging countries. Such investment is basically very risky since the political and economic conditions are very volatile. If the countries show a lot of promise based on their team, performance, and stability of the government conditions, that return factor will be huge when compared to other mutual fund options.
Global Funds:
These funds make investments in any part of the world. The investor’s portfolio will consist of many investments from multiple countries. The risk and return profile will be slightly better than international funds, as the investments, are also made in developed countries offering better stability.
Real Estate Funds:
As the name suggests, the real estate fund will invest in companies that are in the real estate business. The funds may be invested in realtors, property management companies, developers or even construction loans providers. The profits made on the sale of property or development will be given as returns to the investor.
Commodity Focused Funds:
These funds don’t directly invest in the commodity, instead, they invest in the company that deals with the commodity. Example: mining company or the companies that produce those particular commodities. The profits of these companies are given as the returns for these mutual funds. The performance is mostly the same way as the commodity.
Market Neutral Funds:
These funds are invested in safe return options like treasury bills, bonds, and securities and try to get the steady and fixed growth that is devoid of the market fluctuations. These types of funds are best suited for individuals who don’t prefer risk option in their investment portfolio.
Inverse Funds:
These funds work in the opposite direction of a conventional mutual fund. They acquire profits when the markets are low and when the market rises the profits of these portfolios will fall. This is high-risk option, best suited for individuals who are willing to face losses in return for higher profits.
Exchange Traded Funds:
These mutual funds are a mixture of both open-ended and closed-ended funds. These are not managed actively and offer a lot of liquidity. Since they are passively managed, the service charges are basically low in these type of mutual funds.
In the last categorization type, the mutual funds are simply divided into three types based on their risk factor.
Low Risk Funds:
these mutual funds are low risk as well as low return types. Example : debt mutual funds. Usually long term investments that give fixed returns and high stability for the investors capital.
Medium Risk Funds:
These are usually the mixture of debt and equity funds. These offer minimum risks with moderate returns. These funds are best suited for individuals who are willing to take slight risk factor in exchange for better returns.
High Risk Funds:
These mutual funds offer high risk as well as high returns. These are best suited for individuals who don’t mind taking risks to get maximum returns. It is important to note that these high risk funds can go either way when the market fluctuates and it is better to be prepared for ups and downs of the market.