Mutual funds offer investors a diverse range of investment options that help meet their financial goals. From stocks to bonds to real estate, mutual funds invest in various assets to help investors achieve their specific objectives. But not all investments provide the same kind of returns. To invest wisely, you need to first understand the different types of mutual funds available and which ones are relevant for you.
In this article, we will explore the different types of mutual funds and what investment goals they cater to. We’ll also cover some of the best mutual funds to invest in 2023 and how to invest in mutual funds.
Types of Mutual Funds
There are many ways to classify mutual funds, including by asset class, investment philosophy, and investment objective. But for the purpose of this article, we’ll categorize them based on their investment objectives.
1. Equity Funds
Equity funds, also known as stock funds, invest primarily in stocks and other equity securities. They are ideal for investors who want high long-term returns and can tolerate market volatility. Equity funds are further classified based on the size and style of companies they invest in. For example, large-cap equity funds focus on big companies with a market capitalization of over ₹10 billion, while mid-cap equity funds invest in companies between ₹2 billion and ₹10 billion in market capitalization. Small-cap equity funds invest in companies with a market capitalization of less than ₹2 billion. Similarly, value equity funds invest in undervalued companies, while growth equity funds invest in companies that are likely to have higher earnings growth.
2. Fixed Income Funds
Fixed income funds, also known as bond funds, invest primarily in fixed income securities such as government bonds, corporate bonds, and municipal bonds. They are ideal for investors who want stable returns and lower risk. Fixed income funds are also classified based on the credit quality of the bonds they invest in. For example, investment-grade bond funds invest in high-quality bonds issued by companies with a strong credit rating, while high-yield bond funds invest in lower-quality bonds with higher yields.
3. Hybrid Funds
Hybrid funds, also known as balanced funds, invest in a mix of equities and fixed income securities. They are ideal for investors who want a well-diversified portfolio with both growth and income potential. Hybrid funds are further classified based on their asset allocation. For example, conservative hybrid funds invest primarily in fixed income securities and a small percentage of equities, while aggressive hybrid funds invest primarily in equities and a small percentage of fixed income securities.
4. Money Market Funds
Money market funds invest primarily in short-term debt securities such as treasury bills, commercial paper, and certificates of deposit. They aim to provide liquidity and safety to investors while generating a modest return. Money market funds are ideal for investors who want to park their excess funds for a short period.
Now that we’ve covered the different types of mutual funds, let’s look at how to invest in mutual funds.
How to Invest in Mutual Funds?
Investing in mutual funds is easy and can be done in a few simple steps:
1. Determine your investment goals based on your risk tolerance, investment horizon, and financial objectives.
2. Research the different types of mutual funds and identify the ones that align with your investment goals. You can use online tools and resources to compare mutual funds based on their past performance, expense ratio, and other relevant metrics.
3. Open a mutual fund account with a reputable fund house or broker. Some fund houses allow you to invest directly, while others require a broker. You can also invest in mutual funds through your bank and some mobile apps.
4. Fill in the necessary details, such as your KYC (Know Your Customer) details, investment amount, and mode of payment.
5. Choose the mutual fund you want to invest in and submit your application form.
6. Monitor your investment regularly and review your portfolio periodically to ensure it still aligns with your investment goals.
Best Mutual Funds to Invest in 2023
Predicting the performance of mutual funds is not an exact science, and past performance is not always a reliable indicator of future returns. However, based on the current market trends and historical data, here are some of the best mutual funds to invest in 2023.
1. Axis Bluechip Fund – Equity Fund
The Axis Bluechip Fund invests primarily in large-cap stocks with a proven track record. It has consistently outperformed its benchmark index, the Nifty 50, and has generated a return of over 23% in the past year.
2. HDFC Top 100 Fund – Equity Fund
The HDFC Top 100 Fund invests primarily in large-cap stocks and has a strong portfolio of well-established companies. It has consistently outperformed its benchmark index, the Nifty 100, and has generated a return of over 25% in the past year.
3. SBI Bluechip Fund – Equity Fund
The SBI Bluechip Fund invests primarily in large-cap stocks and has a strong track record of consistent returns. It has outperformed its benchmark index, the Nifty 50, and has generated a return of over 21% in the past year.
4. ICICI Prudential Corporate Bond Fund – Fixed Income Fund
The ICICI Prudential Corporate Bond Fund invests primarily in high-quality corporate bonds and has generated a return of over 9% in the past year. It has a low expense ratio and a strong portfolio of well-established companies.
5. UTI Money Market Fund – Money Market Fund
The UTI Money Market Fund invests primarily in short-term debt securities and has consistently generated a modest return. It has a low expense ratio and is ideal for investors who want to park their excess funds for a short period.
Conclusion
Investing in mutual funds is an excellent way to meet your financial goals, provided you choose the right mutual fund that aligns with your investment goals and risk appetite. By understanding the different types of mutual funds available and how to invest in mutual funds, you can make informed investment decisions that help you achieve your financial objectives. With the help of online tools and resources, you can compare mutual funds, track their performance, and make informed decisions about your investments. It’s also important to monitor your investment regularly and review your portfolio periodically to ensure it still aligns with your investment goals. Downloading the Bajaj Finserv app would be a smart move for investors as they offer easy access to mutual fund investment tools and resources.