choose the best mutual fund for yourself..

choose the best mutual fund for yourself..
Source: Economic times


Lets start by trying to understand the concept of risk.
In general it is said that the riskier a fund, the more its potential for earning high returns, at least most of the time.
A riskier fund will give you higher returns in a rising stock market — but would destroy your wealth in a falling one.
So one must always look for funds that deliver the best risk adjusted returns.


Liquid fund
These are the schemes with minimum risk, and consequently lesser long term returns as compared to equity funds. Liquid funds invest in very short term debt papers, with typically a portfolio maturity average of around three months. In other words, these are mainly used as an alternative to short-term fixed deposits.

Floating rate fund
Floating rate funds form the next level of risk. These funds invest in floating rate securities whose coupon rates are linked to a benchmark rates are aligned to any movements in the market rates. Put simply it means that the cash flow which they generate, fluctuates along with the change in interest rates. These are most suitable for rising interest rate times, like the present.

Debt or income funds
These are funds that invest predominantly in income bearing instruments like bonds, debentures, government securities, commercial paper etc. Though these schemes seek to provide a regular and steady income to the investors, the returns from these funds suffers in times of rising interest rates like now. There are short and long term income funds available, based on the maturity duration of portfolio.

Balanced funds
These stand between debt and equity as such funds invest both in equity shares and a fixed income-bearing instruments. The objective is to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These funds are most suitable when the direction of the stock market looks a little uncertain.

Equity Diversified
It is no secret that equity funds (rather equity in general) carries the highest level of risk, but in turn offers the highest returns to an investor. These schemes are easy to understand in that they invest predominantly in equity stocks. Stock markets are known to be volatile, but in a rising stock market like the present one, these investments yield more returns than any other investment.

Specialty funds like sectoral funds or ELSS
If one is very bullish on one particular sector and want to invest only in companies of that sector, sectoral funds suit him the best. There are various sectoral funds available in India like those that invest in banking, technology and pharma companies.

And lastly equity linked saving schemes or ELSS.
A long name for a simple tax saving instrument. These are growth schemes with a mandatory 3-year lock-in period on investments. Savvy investors usually use the product towards the end of the financial year to save taxes. Investing for retail investors should be a long-term process. So research your investments, remember your goals, re-examine your risk and invest — so that your money can work as hard as you.

to know how to invest in any of funds write to mutualfund_help@yahoo.com