Different Types of Mutual Funds and How They Are Priced

Searching about mutual funds? or thinking to invest in mutual funds? want to know different types of mutual funds and how they are priced? but don't know where to start? well, these are some basic questions that come to any individual's mind when they think of mutual funds, but getting the right answers to these questions could be a real task.

There are many websites that are claiming to give the answers they are giving but trust me not every website is giving the right answers don't worry here in today's post we are gonna talk about everything that you should about mutual funds that too with proper research and facts so that it would be easier for you to trust us.

At the end of the article you would get all of your answers by yourself so without any further delay let us just start the article.

What is Mutual Fund

Okay! So do we know what mutual funds are or are we just really excited about the fact that we are going to invest in it? well, don't worry if you don't have much knowledge about it that is exactly why you and I both are here right? Let us just know about mutual funds a little.

Mutual funds are investment vehicles that pool the money of a large number of investors to purchase stocks, bonds, or other securities on behalf of those investors. It is the job of fund managers to manage the portfolios of their investors by buying and selling securities based on the investment objectives they have in mind.

Mutual funds allow individual investors access to a diversified portfolio of investments, reducing risk and increasing potential returns. Investing in mutual funds can be done through investment companies, brokerage firms, or directly through mutual fund companies. They come in a wide variety of investment styles, from conservative to aggressive.

Investing in mutual funds generally entails paying an expense ratio, which is a way of covering the cost of managing the fund for the investor. This fee is calculated as a percentage of the fund's assets and it differs depending on the fund's investment strategy and a number of other factors. A mutual fund may also charge a fee for buying or selling shares, and some may have a minimum investment amount that must be met before shares can be purchased.

Hopefully, now that we know what mutual funds actually do and there are no misunderstandings about them at all, it will be easier to understand them.

Types of Mutual Funds

We have understood the meaning of mutual funds and now the next step is to know the different types of mutual funds in India. Yes, there are many different types of mutual funds that you can find and it is important for you to understand each one of them. Hey! do not have to worry we got you covered. There are basically 10 types of mutual funds that we are going to talk about today. Here we will talk about every type of mutual fund let us just quickly go through each one of them.

1. Stock Funds

This is the first type we are going to discuss today which is stock funds, as we can see from the name these funds invest totally in stocks or equity. These funds are the most popular funds out there and you must have heard of it if you are into this field. The main purpose of stock funds is to provide investors with long-term interest by investing in a broad basket of stocks.

2. Money Market Funds

This is the second type of mutual fund that you should and need to know about. We see less risk in this type of mutual fund than other mutual funds and most other investments, and it's historically lower. An individual can easily invest in the money market funds by purchasing a treasury bill or by opening a money market account at any bank they prefer. This type of mutual fund is really easy to understand as well. I hope you got the real gist of money market funds.

3. Bond Funds

The bond fund is a mutual fund that provides the lowest returns and is also a part of the fixed-income category. A fixed-income mutual fund mainly focuses on investments that pay a set of return such as corporate bonds and etc This type of fund generate interest that interest shareholder could get. These types of funds are likely to have higher pay returns.

4. Target-date funds

Target date funds are a mixture of several bonds and funds. It helps you to prepare for retirement. It works as it rebalances the assets you have as you get near your retirement period. Which is quite beneficial for you. It is important to know about this type of mutual fund too.

5. Hybrid Funds

So basically these funds are the most advanced mutual funds because it invests in various combinations. These are also known as asset allocations or balanced funds. The combination may include stocks, cash, bonds, and other asset classes. One of the major benefits of hybrid funds is that they aim to provide a stable investment approach by dividing the invested money across multiple asset types. Some key features of hybrid funds include Risk and Return, Asset allocation, Balanced approach, Flexibility, and most importantly income distribution.

6. Growth Funds

These funds are highly risky funds as well as the reward or should I say the profit in these funds is also very high as compared to other mutual funds. So basically growth funds are those funds in which you invest in those shares or stocks of companies that have high potential for above-average growth in earnings and share price. One of the best features of this fund is that they aim to generate large capital appreciation by investing for the long term in those companies that are expected to have significant growth in their revenue profits, and market value over the due course of time. Some key features of growth funds include Investment Focus, Growth Oriented stocks, and Risk as well as volatility.

7. Income Funds

If we say that these funds are the most simple type of funds then we are not wrong. So basically in these types of funds, investors invest their money in those types of assets that help the investors to get a fixed dividend or we can also say that they help investors to generate a fixed income. Because of this feature, they are known as fixed-income funds or dividend funds. Now you may wonder what are those sources that can help to generate a passive income so basically, these funds invest in fixed income sources which include government securities, dividend-paying stocks, and bonds.

8. Capital Protection Funds

If we say that these funds are the most protected funds then we are not wrong. As the name suggests these are those mutual funds that aim to protect the initially invested money by investors and provide low to modest returns. You may wonder how these funds can protect as well as provide right? Do not worry we are here to explain to you so basically these mutual funds combine various elements such as fixed-income investments and equity investments. These funds aim to provide a good level of downside protection from losses. the main features of these funds are Downside Protection, Return Potential, and most importantly Portfolio Composition.

9. Fixed Maturity Funds

So as the name suggests fixed maturity funds are basically those funds that allow investors to invest in those debt securities which have a specific maturity date. These funds are also known as fixed maturity plans (FMPs). These funds are designed in such a way that they have a fixed investment domain that matches the maturity of the investor and underlying securities in the portfolio. the main features of these funds are Fixed Investment Horizon, Portfolio Composition, and Limited Liquidity.

10. Pension Funds

It is pretty much clear from the name itself that pension funds are those funds that are specifically designed to provide income to those investors who got retired from their job and are looking for a passive income. These funds are generally established by the government, employers, or various other individuals to accumulate as well as invest various funds during their working period. These funds have only one goal and that is to provide a solid income source after retirement. the main features of these funds are Retirement Savings, Professional Management, and most importantly Diversified Investment Portfolio.

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How are Mutual Funds Priced

It is also important to know if you want to invest in mutual funds or think to invest in mutual funds, so the value of the fund totally depends on the security in which it invests. When an investor buys a share or a unit of a mutual fund, they are technically buying a piece of the portfolio's value or, more specifically, its performance. The purchase of shares of a mutual fund differs from the purchase of stocks. The owners of mutual fund shares do not have any voting rights, unlike stockholders.

The price that is of any mutual fund is denoted by the net asset value (NAV) per share. In order to calculate the NAV, the total value of securities in the fund is divided by the total number of outstanding shares. Typically, shares of mutual funds (MFs) are purchased or amortized at the fund's current net asset value (NAV), which is determined after each trading day and does not change between market hours.

I understand that this is a little tough to understand and that too if you are not from any financial kind of background but we have tried to put it in the most simple words that we could and we are sure that you would have understood it by now.

Advantages of investing in mutual funds

We have discussed the meaning and the types of mutual funds and how are priced but do we know the benefits we get after investing in mutual funds? It is after all for the benefits that we invest in it, isn't it? So let us just quickly go through all the benefits that you can have by investing in mutual funds.

1. Advanced Portfolio Management

The management fee is a part of your expense ratio when investing in mutual funds, and it is used to hire a professional portfolio manager. You pay a management fee to manage your investment portfolio in a professional manner, which is one of the benefits of investing in mutual funds.

2. Convenience and Fair Pricing

It is definitely one of the best benefits you can have by investing in mutual funds, no matter if you are from a financial background or not mutual funds are no rocket science for you, mutual funds are really easy to buy and understand you can easily understand it, and most importantly they have low minimum investment. So this is the best benefit you can have by investing in mutual funds.

3. Expert Management

We all have to agree that we are not professionals who know how to and where to invest and if you are one of them then mutual funds are your best option. Mutual funds are managed by experienced professionals. In mutual funds, all you have to do is invest and then just really all the work that needs to be done that a professional will do which is a great benefit of mutual funds.

4. Flexibility

If you think you should have a lot of money in order to invest in mutual funds then you are totally mistaken this is one of the benefits of investing in mutual funds that this is totally flexible you can invest in smaller amount too. You can easily invest according to your income and your availability. There is no need to stop yourself just because you do not have a huge amount of money.

5. Accessibility

This is one of my favorite benefits you can gain by investing in mutual funds. You can easily buy and sell mutual funds. This is no rocket science at all. Mutual funds are easily accessible from anywhere and you easily buy them from anywhere no matter whether you are at your home or at your work if you want to invest in mutual funds you can do that at very moment.

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Wrapping up!

When we heard of mutual funds the first question that comes to our mind that how are they priced or how many types are there in mutual funds, and don't worry you are not the only one many people are there too. Once I myself chose to invest in the mutual fund then I decided to research it and then finally after all the research I came up with this article. In this article, we have covered almost everything that you should know about mutual funds including different types of mutual funds and how they are priced.

I am glad to see you at the end of the article it simply means that you have read it and I hope you got all the answers that you were looking for. We would be really grateful if this article may help you in any sense.

Frequently Asked Questions (FAQs)

There are many questions people ask us very often, so here are answers to a few of them.