Investing in Mutual Funds - Types of Mutual Funds

Summary

This video script provides an in-depth exploration of various mutual fund schemes offered by different fund houses, categorized by organizational structure (open-ended, close-ended, and interval funds) and investment portfolios (equity, debt, and hybrid funds). It discusses the pros and cons of each type, alongside special options like ETFs, ELSS, and gold funds. The script highlights key considerations like expense ratios, entry/exit loads, and fund management strategies, advising new investors on fund choices based on risk tolerance, investment goals, and time horizons.

Takeaways

• 📊 Mutual fund schemes are categorized by organizational structure (open-ended, close-ended, and interval funds) and investment portfolio (equity, debt, and hybrid funds).
• 🔄 Open-ended funds allow continuous investment and redemption, offering flexibility to investors.
• ⏳ Closed-ended funds have fixed maturity periods, with limited buying opportunities during the New Fund Offer (NFO) and require trading on stock exchanges.
• ⏲️ Interval funds combine features of open- and closed-ended funds, allowing investments and redemptions at specified intervals.
• 📈 Equity funds invest in stocks, offering higher returns but with higher market risk, while debt funds invest in fixed-income securities, providing lower risk and more stable returns.
• ⚖️ Hybrid funds invest in both equities and debt, balancing growth potential with risk management, and are further categorized into equity-oriented, debt-oriented, and balanced funds.
• 💼 Sectoral and thematic funds focus on specific industries or sectors, such as technology or pharmaceuticals, offering targeted exposure.
• 💸 Expense ratio is a crucial factor for mutual fund investors, as higher expenses reduce overall returns. It’s calculated as a percentage of the fund's average net asset value (NAV).
• 🚪 Exit loads are fees charged when investors redeem their investments too early, while entry loads are rarely applied today.
• 🌱 Growth options reinvest earnings back into the fund, leveraging compounding, while IDCW (Income Distribution cum Capital Withdrawal) options distribute earnings regularly as dividends.

Q & A

What are the two main criteria used to categorize mutual fund schemes?

The two main criteria used to categorize mutual fund schemes are organizational structure and investment portfolio.

What are the three types of mutual funds based on organizational structure?

Mutual funds based on organizational structure are classified into three types: open-ended funds, close-ended funds, and interval funds.

What is the key feature of open-ended funds?

The key feature of open-ended funds is that they allow investment and redemption at any time, offering flexibility to investors.

What is the difference between closed-ended funds and interval funds?

Closed-ended funds have a fixed maturity period and allow investment only during the New Fund Offer (NFO) period, while interval funds permit investment and redemption only during specific intervals, such as monthly or quarterly.

What are the three primary categories of mutual funds based on their investment portfolio?

Based on the investment portfolio, mutual funds are categorized into three primary types: equity funds, debt funds, and hybrid funds.

What is an Equity Fund, and what level of risk does it carry?

An Equity Fund primarily invests in stocks or equities of companies. It offers the potential for higher returns but comes with a higher level of risk due to market fluctuations.

What is the main objective of debt funds?

Debt funds invest in fixed-income securities like government and corporate bonds. Their main objective is to provide regular income and generally carry lower risk compared to equity funds.

What are hybrid funds, and how do they balance risk and return?

Hybrid funds, also known as balanced funds, invest in a mix of equities and debt securities. They aim to balance risk and return by diversifying across asset classes, offering more stability compared to pure equity funds.

What are large-cap, mid-cap, and small-cap funds?

Large-cap funds invest in established companies with large market capitalizations, offering stable but lower returns. Mid-cap funds invest in medium-sized companies, balancing growth potential and risk. Small-cap funds target smaller companies with higher growth potential but also higher volatility and risk.

How does the expense ratio affect an investor's returns in mutual funds?

The expense ratio represents the annual cost of managing a mutual fund as a percentage of the fund's average net asset value (NAV). A higher expense ratio reduces the overall returns for investors as it covers the fund's operating and management expenses.