Mutual Fund Basics

India has two recognized indices

1. S&P BSE Sensex – An index of stocks of 30 companies listed on the BSE, commonly referred to as Sensex
2. Nifty 50 – An index of stocks of 50 companies listed on the NSE, commonly referred to as Nifty

With a wide range of mutual fund schemes available for investment, it is always good to be aware of the key features of the schemes you are comparing and ultimately making an investment decision.

Here are some important terms that you ought to know while investing in a mutual fund scheme:

Mutual Funds Classification

Types of mutual fund schemes based on asset classes:

Sector funds are those mutual fund schemes, which carry the mandate to invest in the companies working in the specified sector predominantly. Such funds invest a minimum of 80% in equity instruments of that particular sector. For example, a banking fund can help you have a focused investment in banking stocks.

Historical data suggests that no asset class has been consistently a winner always. As such, having an optimum asset allocation is your key to long term wealth creation, as it allows the portfolio to perform across the market trends and economic cycles.

Mutual funds are suitable for the investors who don’t want to invest directly into equity and debt markets but still wish to have such investment exposure in their portfolio.

Mutual funds provide you with a wide range of investment options, including opportunities to invest across the asset classes, market caps, sectors, and companies.

A prudent financial plan not only requires a well-chalked out investment journey for the achievement of financial goals but also maintaining a contingency fund for any future emergencies. As such, an emergency corpus of at least six months’ expenses is always desirable, so that you can enough financial cushion towards any unforeseen situation.

Mutual funds offer you a wide range of investment options across the asset classes, be it equity or debt, and even within the sub-categories of asset classes like mid-cap stocks, large-cap stocks etc.

The evolution of financial markets has opened a wide range of investment options before the investors, wherein they may choose to investment product to suit their financial goals, risk profile and investment strategy.