Mutual funds

Subject: Economy

Context:

After over four years, equity mutual funds have witnessed their first monthly outflow – investors pulled out a net Rs 2,480 crore in July.

Concept:

• A mutual fund is a type of financial vehicle made up of a pool of moneycollected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.
• Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors.
• The Securities and Exchange Board of India has categorised mutual fund in India under four broad categories:
  
  • Equity mutual fund scheme:These schemes invest directly in stocks. These schemes can give superior returns but can be risky in the short-term as their fortunes depend on how the stock market performs.
  • Debt mutual fund schemes: These schemes invest in debt securities. Investors should opt for debt schemes to achieve their short-term goals that are below five years. These schemes are safer than equity schemes and provide modest returns. There are 16 sub-categories under the debt mutual fund category.
  • Hybrid mutual fund schemes: These schemes invest in a mix of equity and debt, and an investor must pick a scheme based on his risk appetite. Based on their allocation and investing style, hybrid schemes are categorised into six types.
  • Solution-oriented schemes: These schemes are devised for particular solutions or goals like retirement and child’s education. These schemes have a mandatory lock-in period of five years.