Investors in general like to earn high returns on their investments. With falling interest rates, many investors – particularly those who depend on interest income — are forced to look beyond the traditional investments like fixed deposits to make up for the shortfall.
Many of us would have heard that investing in equity shares is quite rewarding. For instance, Rs. one lakh invested in WIPRO is today worth over Rs.4000 crore. While these numbers look stunning, in reality, the personal experience of many of us could be diverse.
While many of us would like to earn such handsome returns, in reality, identifying the right stock is a big challenge. This is despite access to information over the Internet and social media like WhatsApp, Twitter, etc. As a result, many investors, instead of generating good returns, end up losing money. A situation like this would have made many realise the need for professional investment managers who are qualified and experienced in managing money.
While high-value investors can avail themselves of the services of portfolio management services, mutual funds have come as a blessing to all category of investors.
Mutual funds typically pool investor’s money and invest in various securities as per the investment mandate. If this mandate is to invest in debt securities it is called Debt Funds and if the mandate is to invest in equity shares, it is called Equity Funds. And there are schemes which invest in a mix of both, hence called as Hybrid Funds.
The Securities and Exchange Board of India (SEBI) has further classified equity mutual funds based on the market capitalization, which is derived by multiplying the total number of shares with the current market price:
- Large Cap Funds
- Mid Cap Funds
- Small Cap Funds
- Large and Midcap Funds
- Multi-Cap Funds
- Focused Funds
- Dividend Yield Funds
- Theme Funds
- Sectoral Funds
- Index Funds
- International Funds
We shall look at the salient features of each of these funds next week.