Understanding Investment Funds: Types and Strategies of Research

Mutual and other investment funds can be described as pooled investment products through which several people contribute their money and the combined amount is managed by professionals for the purpose of acquiring securities and other related assets like stocks, bonds, etc. The idea of investment funds is relatively simple, which is quite convenient for everyone, including newcomers in the world of finances. This means that through diversification of securities mutual funds have higher chances of earning better returns than investing in fixed deposit accounts as use of account eliminates specific security risks hence better long term returns.

To read more, one requires to comprehend how mutual funds, including index funds, work in making investment choices. What does it imply when one makes an investment by putting their money into a mutual fund? What kind of asset is it and how can a person begin to invest in this financial product?

In the following guide, the readers can learn the general information about the investment funds: definition of investment funds, their history, classification, advantages, disadvantages, as well as conclusion.

An open-end fund gathers money from investors for the purpose of buying various securities in the market. They hold the units or stocks of the fund as an investment in the rest of their portfolio. For instance, mutual funds provide a high degree of marketability because investors can sell their units at any time.

Types of Investment Funds

Equity Funds

These funds are mainly driven on stocks, and more than 65% of the investment goes towards equity and derivatives. They exist in different flavors suitable for certain fields or a particular strategy like technology, value, or blue-chip investment.

Debt Funds

These funds mainly invest in government securities, with more than sixty five percent of their total portfolio invested in bonds, treasury bills and other fixed income securities.

Hybrid Funds

Hybrid funds are generally the ones that combine both equity and debt funds with an intention of getting the best out of both worlds.

Special Category: ELSS Mutual Funds

ELSS mutual funds, as the acronym suggests, are lock-in funds where the investor cannot redeem his investment for a minimum of 3 years, come what may of the market. Usually, attempts at early withdrawal are associated with penalties.

Investment Strategies

Lump-Sum Investment

This involves paying a large portion of money in a mutual fund scheme, where the reward given is proportional to the performance of the scheme. Despite these, it bears higher risks but can be more profitable.

Systematic Investment Plan (SIP)

SIP involves investing a constant amount at certain regular intervals, typically beginning with an even ₹100 per month. This serves to assist the investor control risk and possibly earn more income in the long run.

Documents Required For Purchasing Mutual Funds

Identity Proof:

• Recent photograph (if the individual has PAN card)
• Any government-issued photo identification including Aadhaar card, passport, voter ID, and driver’s license.

Residence Proof:

• Passport
• Ration Card
• Utility Bill
• Aadhaar (UID)
• Driver's License
• Voter's Identity Card

This guide aims to educate the investors on different types of investment funds and various investment strategies available to ensure that wise decisions are made.