There are funds that invest in multiple sectors of tradable securities including government securities. Though most of these are open end mutual funds closed end funds are not entirely new to this. Some of these types are:
Money Market Funds
A conservative and short term allocation of funds that yield moderate returns but the funds emphasize on preservation of capital.
Balanced and Growth Funds
A relatively aggressive fund that focuses on higher returns and capital appreciation. Another important feature of this type of funds is they are highly diversified reducing market risks.
Index Funds
Goal of index funds is to match the market performance by investing on index heavy weights. This can be a bond index fund or a stock index fund. For the latter type Dow Jones is an example and they follow the 30 stock index. Low expenses are the advantage.
Combination Funds
There are a number of combination funds available in the market. For income you have income funds that invest in mainly government bonds and some times in private sector debt instruments too. These are also called as bond mutual funds. The aim of such funds is to provide a guaranteed regular income to investors. The values of units/shares are determined by the fluctuating rates of interest. Higher the rate of interest on the bond instruments higher is the price of shares. There is a whole host of options in the category with multiple combinations to choose from.
Pure Stock Funds
The main type of funds under this category are aggressive ones and the first concentrates on growth by investing in such companies that have potential to an explosive growth. You should not forget that other side of high growth potential is high risk element. These funds do not usually pay dividends at all. Buying them is at your risk of going bankrupt of the entire fund. The other types include, funds invested in large caps stocks, mid stocks where in their share value is stable or the fluctuation is minor. On the flip side the dividends paid by such companies are not usually attractive.
Growth Funds and Growth and Income Funds
Growth funds concentrate on bigger growth potential but keeping an eye on the dividend income too. The asset allocation in growth funds is spread on both but with skewness in favor of instruments of high returns. Certain safety factors are in built in to the allocation mechanism here. This is recommendable depending on your risk exposure limit. On the other hand growth and income funds emphasize more on appreciation of the capital employed and dividend income than investing in high growth companies. This is recommendable when your objective is not high returns in a short term but a steady income and a growth in the principle over a period of time.
Load and No-Load Funds
Some funds charge you fees called as loads to cover their expenses to manage your asset/investment. These loads appear to be small but work out to be a very high amount over a long period. Certain funds do charge fees even while claiming they are no load funds. It is important to check out the repercussions of this on your returns after deduction of tax and fees.
Tips To Choose a Right Fund for Your Need
There is no better guide to investment than your objective. There is a fund to suit every need and picking one should not be a difficult decision. A few points on this:
- Decide on the amount you can put aside
- Write down your objectives like steady growth, steady income or faster growth etc
- Optimize your theoretical returns as opposed to investments and expenses considered
- If your objective is stability and income G-SEC bond funds are your best bet
- Don't forget to cross check the credibility and experience of the funds.
No comments:
Post a Comment