Invest Mutual Funds

• Diversified Equity Mutual Fund Schemes – Invest in Diverse companies and the investments are low risk when compared to other equity schemes.
• Sector Funds or Thematic Funds – i.e. Pharma Fund, power sector Fund etc. This fund has the highest level of risk as it depends on purely the performance of any particular sector. Any bad news can impact the stocks and the funds.
• Passive Funds or Index Funds – The fund manager will invest only in the stocks present in the index. This will be done as per the weightage of the stocks in the index.

1. The objective of the index fund is to perform at par with the market and not to outperform the market.

2. These funds have very low operating cost.

3. They have a pre-defined portfolio.

4. As the fund manager has a very little role to play, fees for the fund manager is less. He does less research for the investments.

5. The returns from these funds are same as that of the index which they have taken as benchmark.

6. Tracking Error in an index fund is defined as the difference in returns between the Bench mark index and the corresponding index fund. Tracking error occurs in an index fund because of the expenses incurred for managing the mutual funds.

7. If the tracking error is less than 1, then it is considered to be a good mutual fund.

• Active Funds– These funds are designed to outperform the market. These funds have high running cost due to the research done and the portfolio of these funds changes more frequently.  The fund manager has a very active role in deciding the investments.
• ELSS – Equity Linked Savings Schemes -

1. There will be a 3 year lock in period for this investment.

2. SIP Plans are also available.

3. The minimum amount to be invested is Rs 500.

4. You can get tax benefits upto 1 lakhs through Section 80C of Income Tax Act.

• Dividend Yield Schemes:

1. They invest in companies which pay high dividends.

2. NAV Of these schemes fluctuate very less when compared to the other schemes.

• Growth Funds:

1. The objective of these funds is to generate long term capital appreciation by investing in high growing companies i.e. the companies which have growth rate than above average.

• Value Funds:

1. These funds invest in undervalued stocks. These stocks would be fundamentally strong, but the stocks would be trading below the intrinsic value.

2. These types of funds are suitable only for long term investments.

3. The loss that would arise in these investments would be less and the loss would be very limited as we are already buying the stocks at a cheaper price.