Investment Options

2.What are the various types of mutual funds?

Various types of Mutual Fund schemes exist to cater to different needs of different people. Largely there are three types mutual funds.

1. Equity or Growth Funds,

• These invest predominantly in equities i.e. shares of companies

• The primary objective is wealth creation or capital appreciation.

• They have the potential to generate higher return and are best for long term investments.

• Examples would be

  • “Large Cap” funds which invest predominantly in companies that run large established business

  • “Mid Cap funds” which invest in mid-sized companies. funds which invest in mid-sized companies.

  • “Small Cap” funds that invest in small sized companies

  • "Multi Cap funds" that invest in a mix of large, mid and small sized companies.

  • “Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies

  • “Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment

  • Tax-Saving Funds

2. Income or Bond or Fixed Income Funds

• These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.

• These are relatively safer investments and are suitable for Income Generation.

• Examples would be Liquid Funds, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

3. Hybrid Funds

• These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.

• Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.

3.How is ULIP different from Mutual Fund?

A ULIP is Unit-Linked Insurance Plan. It is a life insurance policy with an investment component that is invested in various financial markets. The returns generated by the investment component determine the value of the policy. However, the sum assured on the death of the policy holder may not be a function of the market – the minimum sum assured may remain unaffected. In other words, a ULIP is a hybrid product, combining investment and insurance.

The investment component of ULIP is similar to a Mutual Fund.

1. Both are managed investments.

2. For both, a team of professionals manages the investments and the funds are invested in line with a stated objective.

3. There would be units allotted to the investor on purchase and there would be NAV per unit declared periodically.

Since ULIP is an insurance policy, failure to pay regular premium would result in termination of the risk cover.

In Mutual Funds, all the expenses are charged before calculation of the NAV, whereas in case of ULIP, some expenses are charged like mutual funds, whereas some others are charged by cancelling a small number of units from the investors’ accounts.

4.How do I fulfill my financial goals?

To begin with, it is important to select the right scheme for your investment need. Look at it this way. How do you decide what mode of transport you should take when you travel? Whether you want to walk it up, take an auto rickshaw, a train or a flight, it all depends on your destination, on your budget and travel time available. How do you decide what mode of transport you should take when you travel? Whether you want to walk it up, take an auto rickshaw, a train or a flight, it all depends on your destination, on your budget and travel time available. Planning for your fInancial goals is also is also uses the same kind of principles. Different modes of transport for different travel needs – different schemes (or combination of schemes) for different needs.