As we are all aware that Mutual Funds are supposedly the best financial investment. A Large part of the investing community believes that Mutual Funds invest only in high risk equity. This is factually incorrect. A large component of the Mutual Fund Industry is debtor fixed income securities. Roughly, 65-70% of the Indian mutual fund industry is fixed income securities. In other words, roughly one third of the investment in Indian Mutual Funds goes towards fixed income securities.
Where does debt fund invest?
Debt funds invest in Fixed income securities. Investment objective in a debt fund is low risk and fixed returns. Henceforth, Investments are in safe securities like government bonds, corporate funds, non-convertible debentures, etc. Most of them are rated by reputed rating agencies like CRISIL and ICRA. Debt funds can be further classified as liquid funds, Short term debt, Medium and long-term debt.
Where does Equity fund invest?
Equity funds essentially invest in stocks of listed companies (Equity shares) and are prone to fluctuations in value. Henceforth, NAV of equity funds can show huge fluctuations. Equity funds are not advisable for the risk-averse investor. A fund is classified as Equity fund if minimum 65% or more investment is in Equities. Equity funds are high risk securities where returns are tax free after 1 year. Equity funds can be closed or open-ended. A simple classification of Equity funds is Balanced funds, ELSS, Growth funds etc.
Debt and Equity mutual funds