Mutual funds offer a way for a group of investors to effectively pool their money so they can invest in a wider variety of investment vehicles and take advantage of professional money management through the purchase of one mutual fund share. Mutual fund companies essentially collect the money from their investors, or shareholders, and invest that pooled money into individual investment vehicles according to some risk profile, money management philosophy, or financial goal. The mutual fund then passes along the profits (and losses) of those investments to its shareholders.

More & more people are learning about mutual funds as a means of investment. From putting one’s money into fixed deposits or investing in real estate, people are becoming aware of mutual funds as lucrative choice of savings & investments. It is becoming the most sought-after method of investing but having limited or no knowledge of it can hamper one’s plan to go ahead with mutual funds completely.

1. Professional Managers
-> Mutual funds are managed by professional people who have years of experience handling different types of assets. They are a group of dedicated team that handles all financial decisions based on the performance & prospects available in the market.
2. Offers Convenience
-> If saving time & convenience is what you seek then mutual funds are an ideal choice for investment. Because of low investment amount options, multiple choices based on one’s life & financial goals, offering the ability to redeem them on any business day, mutual funds are much sought after.
3. Diversification
-> Mutual funds help counter risks to a large extent by equally distributing your investments across diverse range of asset classes. Mutual funds work by the adage “Do Not Put All Your Eggs in One Basket”.
4. Counter Inflation
-> Investing in mutual fund is a smart way of beating inflation as it helps investors to generate inflation-adjusted returns, without spending much time or energy on it. This choice of investing makes sure that the purchasing power of your money doesn’t go downhill over some years
5. Less Expensive
-> As compared to investing directly in capital market, mutual funds offer investors the advantage of low cost investment. Most stock options require a huge capital to begin with, on the other hand mutual funds can be started with as low as Rs.500 per month & investors can derive benefit from the long-term equity investment.
6. Safe & Transparent
-> Since every mutual fund is managed & regulated by SEBI, you need not worry as your investments are safe. SEBI has several regulations & legal frameworks in place which ensures that your investments are managed in a disciplined manner. Now it’s true that every investment is subject to certain risks, however, prudent selection based on strong market knowledge & fundamentally sound securities with diversification can help hedge such risks and generate high returns on your investments.

Large Cap Mutual Funds Large cap funds are such funds that spend a greater proportion of their portfolios in large market capitalized firms.

Benefits of a large-cap mutual fund:

• Large-cap mutual funds in the short term have provided higher returns to investors.
• They assist in building stable wealth and they periodically pay out dividends.
• Investments in the large-cap fund deliver stable and low-risk returns.
• Small risk-tolerant investors may benefit from investing in large-cap funds.
• We are in a position to survive a bear market.

Mid Cap Funds invest in equity and equity related instruments of mid-cap companies. According to the Securities and Exchange Board of India (SEBI), mid-cap companies are those which are ranked between 101 and 250 in the list of companies according to market capitalization. To give you a fair idea, the market capitalization of the 101st company on the list is around Rs. 30,000 crores, while the market cap of the 250th company is around Rs. 9,500 crores.

Since mid-cap companies fall between the small-cap and large-cap companies, they offer certain advantages and disadvantages over both of them. Mid-cap funds usually offer better returns than the large-cap funds but are more volatile than them. On the other hand, they are more stable than the small-cap funds but tend to offer lesser returns. In a nutshell, mid-cap mutual funds are the perfect combination of risk and return. As an investor, if you select the schemes prudently having a great selection of stocks, diversification across sectors, and good fund manager, then you can expect much better returns.

Small-Cap Funds invest a major portion of their investible corpus into equity or equity-related instruments of small-cap companies. According to the Securities and Exchange Board of India (SEBI), small-cap schemes need to invest at least 80% of their total assets in small-cap companies. Also, SEBI defines small-cap companies as those which are ranked below the 250th rank in terms of market capitalization. In monetary terms, these are companies with a market capitalization of less than Rs. 500 crores.

It is important to note that small-cap funds carry a high level of risk. Even the slightest volatility in the market can have a huge impact on the share prices of small-cap companies. However, these stocks also have a huge potential to offer amazing returns. Think about it – a small company has a lot of scope for growth and when it does grow, the share price would increase dramatically. However, many investors tend to turn towards small-cap schemes for short-term investment needs. This can be counterproductive as small companies need time to grow. Hence, it is usually recommended to opt for small-cap funds if you have a higher risk tolerance and a long investment horizon.

As the name suggests, Multi Cap Funds invest their corpus in a portfolio of equity and equity-related stocks of companies with varying market capitalizations. So, in a Multi Cap Fund, you will find investments in large-cap, small-cap, and mid-cap companies. Every scheme invests in different proportions making the Multi-Cap Fund category a good option to match your risk tolerance.

When you invest in a large, small, or mid-cap fund, the fund managers are restricted by the portfolio definition. This means that a fund manager of a large-cap fund cannot invest in shares of a small-cap company even if the opportunity is lucrative. Hence, a multi-cap fund is considered to be a better option for wealth creation as the fund managers of these funds can leverage investment opportunities across the spectrum of the market. Also, every investor can find a multi-cap scheme in sync with his financial needs.

1. Equity Funds
-> These are type of funds that primarily invest in stocks and main investment objective of this class of funds is long term capital growth. Further, there are many types of equity funds which are categorized based on the size of the companies like large, medium or small.
2. Balance Funds
-> The strategy used by these funds are to maintain a certain percentage of mix of both fixed income & equities. Normally, a typical balanced fund will maintain a distribution of 60% equity & 40% fixed income. A similar type of fund known as “Asset Allocation Fund” follows on similar objectives that of Balanced Funds but then these kinds of funds do not hold any specified percentage of any asset class.
3. Dividend Fund
-> This type of mutual funds invests in stock of companies that pay dividends, which are profits that a company shares with its stakeholders. These are income generating funds & tend to be less risky than other types of funds. It is a good choice of investment for those who seek regular payments over appreciation.
4. Debt Funds
-> These funds are known as safe investments and provide fixed returns. In these, funds are invested in debt instruments like company bonds, government bonds, fixed income assets.

There are other Funds also like:
1. Bond Funds
2. Global/ International Funds
3. Income Funds
4. Money Market Funds