How can Mutual Funds align to your investment objectives? 

We have different financial goals in each stage of our life. A mutual fund is a good investment option as there are a multitude of mutual funds available that can be aligned with your particular financial goals as well as your own investor profile. For example, equity mutual funds for long term Capital growth, ELSS for tax planning etc. We will take a look at various categories of mutual funds and how they can align to your needs. 

But first things first, what are mutual funds? 

A mutual fund is a pool of money collected from the investors and used by Fund Managers to buy stocks and other securities with the objective of generating returns, which is then distributed amongst the investors on a pro-rata basis. The securities that the mutual funds invest in could be debt and money market instruments or stocks and equity investments etc. There are many ways you can categorize mutual funds. Each category of mutual fund has a list of specifications as per SEBI that it must follow. Today let us examine mutual funds with special emphasis on how they can serve your financial goals. 

Types of mutual funds based on investment objectives – 

1. Equity oriented mutual funds: These types of funds invest predominantly in stocks and equity linked securities and are meant for investors who have a high-risk taking appetite and are looking for long term capital appreciation. If you are looking to build up a corpus for some goal that will occur after about 7-10 years, then you should invest in this type of mutual fund.  Equity oriented mutual funds aim to beat the benchmark returns in order to provide alpha to its investors. ELSS funds are ideal for saving taxes as well as aligning to your long-term goals. 
2. Debt oriented funds: Also known as fixed income funds, the debt mutual fund schemes offer stable and regular returns with low risk and thus suitable for risk averse investors. It is important to note that these mutual funds are not risk free. They only carry lower risk compared to the equity funds. These funds invest in debt securities and money market instruments and are suited to investors who have a short to medium investment horizon of say few days to few years. The debt funds are best for short to medium term goals like building a contingent fund, or saving up for a vacation abroad etc. 
3. Hybrid funds: This type of mutual fund is a blend of equity and debt holdings and is suited to investors who want some capital growth coupled with the stability of debt. This type of mutual funds has various categories based on the percentage of equity and debt holdings in their portfolios.  
4. Solution Oriented funds: These are mostly hybrid funds and serve the investors with the following goals: 

1. Retirement Fund: Aimed at building a retirement corpus, these funds come with a lock in period of 5- years or your reaching retirement age whichever is earlier.  
2. Children’s Gift plan: Aimed at building a children’s corpus like education or wedding, these funds come with a lock in period of 5- years or your child reaching the adult age whichever is earlier. These are again hybrid funds that offer capital appreciation with stability offered by debt funds.  

Find out from a mutual fund distributor or financial advisor which are the other category of funds and how they may be suitable for you.