Asset allocation and diversification are two concepts
Every investor tries to find a scheme that matches his or her
Mutual fund is a preferred investment option for many people, which is a portfolio of stocks and bonds. The investment profile of a fund largely depends on the type of fund it chooses to invest in. Three main types of funds are available for investing for an investor, such as equity funds, fixed-income funds, and balanced funds. As per the Securities and Exchange Commission, you can find two basics of investing. They are asset allocation and diversification.
Asset allocation and diversification are two concepts that might be the sum up of what your grandmother used to advise you. That is, don’t put all your eggs in one basket. They also ensure that those eggs should come from different chickens. This concept is also applicable when it comes to investing in mutual funds. A mix of both stocks and bonds gives a diversified portfolio and offers a professional asset allocation.
Different mutual fund categories
You can find different mutual funds in India based on asset class, such as equity funds, debt funds, and hybrid funds. Equity funds mainly invest in stocks, and their gains or losses depend on the performance of the shares they invested in the stock market. The debt funds are good choices for investors who have low-risk appetite. It mainly invests in fixed-income securities such as securities, treasury bills, and bonds. They invest in instruments like Gilt Funds, Short-term plans, Fixed-maturity plans, Long-term bonds, monthly income plans, and liquid funds. Debt funds are suitable for passive investors who look for a regular income without high risks.
Hybrid funds or balanced funds are the optimum mixes of both stocks and bonds. These funds can bridge the gap between debt funds and equity funds. They can follow a fixed ratio or variable ratio when it comes to investing in hybrid funds. That means 60% of its assets can invest in stocks and the remaining 40% in bonds or vice versa. Besides, mutual funds also invest in the cash market or money market securities like T-bills, bonds, and certificates of deposits.
Stocks and bonds- Two different types of investment categories
Mutual funds invest in both stocks and bonds, and these are two different categories of investment. As equity investments, stocks provide you an ownership position of the company that you hold its shares and make money through dividend payments. That means you get a share of the profit of the company. And you can get capital gains by selling the stocks. Bonds are entirely different and represent a loan to a company, government organization, or municipality. It helps you to make a steady interest income. Besides, you will get a promised return of the face value of the bond upon maturity.
Mutual funds that invest in both stocks and bonds
Every investor tries to find a scheme that matches his or her personal financial goals and risk appetite when he or she plans to invest in mutual funds. Those who plan to avoid risks associated with the stock market might opt for pure debt funds. In fact, pure equity funds are a great choice for those who do not mind taking the risk to get maximum profits. But if you desire to get the best debt and equity, you can choose balanced or hybrid funds.
The debt portion of hybrid or balanced funds comprises fixed income instruments like treasury bills, government bonds, and corporate debentures. A highlight of investing in balanced funds is that it offers you both capital appreciation and capital protection. These funds are the combination of both the objectives. The equity assets provide a certain amount of capital appreciation, while its debt portion protects the value of the capital against inflation.
Mainly aimed for conservative investors
One of the great attractions of a balanced fund is that its debt part ensures stable returns. It is better suitable for those who prefer to invest in safe instruments as the debt part of the hybrid fund ensures them stable returns. In balanced funds, the equity part is sensitive to the market movements, and this mutual fund is suitable if you have a low-risk appetite. The right blend of diversification and asset allocation between stocks and bonds in a hybrid fund acts as a shield against loss. At the same time, it ensures an opportunity for steady income and growth.
Many people invest in mutual funds because they find it a good choice to meet their investment goals. But many of them, especially new investors, probably do not know how a mutual fund works. Most mutual funds invest in stocks, but some in bonds. You can also find funds that invest in gold and even in real estate. A fund manager manages the portfolio of both stocks and bonds. You have shares or bonds in your mutual fund portfolio. And get income as dividends on your shares or interest on bonds in the portfolio of your fund. The balanced or hybrid funds invest in both stocks and bonds for investors who expect good returns with minimal risks.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh / Enquire