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What Type of Mutual Funds are Safe?

by Sonal Shukla

What Type of Mutual Funds are Safe?

Options! Options! Options! Our options could not be larger than it is right now. You know this does not just imply clothing, lifestyle, but it also implies saving and investing, isn’t it? There used to be a time when post office schemes and a savings account were how everyone saved. Now, we have come far from just a few options. Our options range from small, big, complex, simple, and everything in between. Whether it is saving or investing, financial tools have taken an immense rise in the last two decades. If you have already seen your share with post office schemes, saving accounts, and other financial investing tools, you are mostly looking into mutual funds and figuring out how to start investing in them. 

Why would one choose mutual funds in the first place?

Mutual funds are popular among investors for a variety of reasons, including convenient diversification and the potential to safeguard investments against inflation. So, I think it is time you find the best equity mutual fund for yourself. Let’s find out how you can do that. 

– They are Easy to Access and Also to Understand

A mutual fund is a professionally managed, regulated investment fund that pools money from regular and institutional participants and invests it in a variety of assets. They enable you to make capital market investments in whatever amount that suits you. Mutual funds invest in a variety of securities, including stocks, bonds, and commodities. Mutual funds enable investors to manage risk and diversify their investments.

– They Beat Inflation

Even in bond and hybrid mutual funds, investors have a strong possibility of earning long-term returns that outperform the average rate of inflation. Furthermore, these products are less hazardous than stock mutual funds.

– They are a Source to Long Term Wealth

Mutual funds can help yield long-term, consistent gains. Investors can put money into mutual funds in any amount, as little as INR 500, and that money has the potential to multiply over time. Volatility is higher in short-term investments.

The Three Risk-Based Variants of Mutual Funds

  1. High Risk: These are mutual funds that are excellent for those who are willing to take larger risks with their money in order to generate wealth. Inverse mutual funds are an example of a high-risk fund. Even if the risks are considerable with these funds, the returns are larger.
  2. Medium Risk: These are investments having a medium level of risk for the investor. They are suitable for those who are willing to take a risk with their investment and typically provide larger returns. These funds can be utilized as an investment to accumulate wealth over time.
  3. Low Risk: These are mutual funds in which those who do not wish to take a risk with their money invested. In such circumstances, investments are made in locations such as the debt market and are often long-term investments. Because they are low in risks, the returns on these investments are also quite low. Gilt funds, which invest in government assets, are an example of a low-risk fund.

As a beginner, you might want to kick start your journey with funds by being on the safer side. Let us look more into it.

The Safety Factor of Your Investment

Fixed or recurring deposits were considered the most secure product by our elders since they are administered by banks that are regulated by the RBI. Banks are expected to hold a large deposit with them, ensuring a nearly guaranteed return on investment.

You’ve probably heard or read that mutual funds are susceptible to market risks; before investing, carefully read any scheme-related documentation. This is true not only for mutual funds but for any product in which you wish to invest. It is critical that you understand the product’s risk, where it invests, and whether it is handled by a professional.

When it comes to the safety of investments investors are concerned about:

  • The Protection of Capital
  • Fraudulent

How to Assess a Mutual Fund?

Low-Risk: These are the least hazardous mutual funds available. Mutual funds with a low-risk profile have a portfolio of securities and instruments such as gilt funds and government securities. These are best suited for persons looking for a more secure source of income. It does not, however, guarantee high returns.

Moderate Low Risk: This risk category mutual fund’s portfolio includes bonds and short-term assets with maturities ranging from one to three years, resulting in lower interest rate risk. These are appropriate for investors with a time horizon of at least two to three years.

Moderate Risk: It denotes that the funds in this category have a moderate risk to their principal. MIP funds are one example of a financial instrument. MIP is an abbreviation for a monthly income plan, although it does not guarantee returns. This type of fund is appropriate for a semi-conservative investor who wants to make a good profit while keeping his risk to a minimum. This classification applies to funds that have a medium to the long-term investment horizon.

Moderate-High Risk: These mutual funds have a strong allocation to equities and associated securities. They are often balanced and equity-oriented, as well as indexes, diversifiers, and ETFs. This label’s products are appropriate for long-term investors looking to build wealth. Equity investment through such funds is tied to the large-cap segment. 

High Risk: Sectoral funds, thematic funds, and international funds are just a few types of funds that fall under this category.

Conclusion

In the beginning, it is a good choice you stick to the safer side of mutual funds, and as time goes and you get your market expertise, your look into this would change. This article has a way for you to know how you can find some risk-free mutual funds in the stock market today.

 

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