What are funds? Funds, a rather commonly heard term, are a sum of money collected for a particular purpose or intention someone wants to fulfil. There are multiple types of funds, which include equity funds, hybrid funds, debt funds, international funds, passive funds, and mutual funds. We’ve heard of some of these varieties more often than others, so let’s dive into the depth of this vast topic.
Mutual funds are a pool of money managed by a professional fund manager. It is a trust which collects money, or “funds”, from a number of investors who share a common investment objective and invest in similar equities, bonds, money market instruments, and other securities. Mutual funds also feature a systematic investment plan, an option offered by mutual funds to investors to invest their money periodically. For example, someone can invest a particular amount each month at a return rate of 12% for a year, and at the end of the year, it would compound accordingly.
The second type of fund is equity funds. These are the funds to invest money into stocks, which may be large-cap, mid-cap, or even small-cap companies. Large-cap companies have a market capitalization value of over $10 billion, small-cap companies have a market value of $3 billion or less, and mid-cap companies are those which fall in between the small-cap and large-cap companies.
Hybrid funds, or the third significant fund type, feature money being invested in multiple asset classes. Asset classes include equity (stocks), debt, real estate, and futures. Investing in this kind of fund can help diversify one’s portfolio and reduce risk.
International funds are those funds where money is invested into companies situated outside the country or abroad.
Debt funds, otherwise known as bond funds, are funds that invest in debt securities. These funds pay dividends periodically, including interest payments.
Passive funds, on the contrary, are used to track the market and its indices, and money is invested accordingly whenever and wherever it is deemed appropriate. Funds are major resources required in one’s life. They are a basic necessity in today’s world, which is why it’s vital to learn more about the different kinds of funds available to you to make your investments – but beware: with investment, there’s always scope for risk!
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