What are Different types o f Mutual Funds

Diversified Equity Fund : The most common type of mutual fund is Diversified equity fund. If you are new to Mutual Funds you should always prefer best performing Diversified Equity Fund. This kind of funds diversify there investment across sectors. The fund manager can always increase or decrease the exposure of this fund to any particular sector as and when he may find it suitable. for e.g If he thinks construction and real estate sector if going to outperform rest of the sectors then he may increase the investment of this fund more towards construction and real estate related companies. and if after few years he may think that real estate has picked and there is no room for appreciation he may reduce or totally his exposure to real estate and may switch his investment to other sunrise sector like banking and finance.

Sectoral Fund : This kinds of funds by there nature are sector specific funds. Lets say Pharma Fund is a fund which can only invest in Pharmaceutical related companies. Hence when pharma sector do well then this funds will do very well and when pharma sector goes down this fund goes down too. so this kinds of funds give very extreme performance depending on the sectors performance. so If you are bullish on a particular sector then rest of the sectors then you can invest in this kind of funds.

ELSS Fund : This are Equity Linked savings schemes. This funds always have a 3 year lock-in period which means that you can withdraw you investment only after 3 years of its investment. hence investment done in may 2008 can only be withdrawn or redeem only after may 2011.
This funds are eligible for tax benefit Under section 80C within the overall limit of Rs. 1 Lakh.

Large cap Fund : This are funds in which majority of the investment is done Large cap companies only. you can safely assume that majority of the investment will be in bse 100 companies or so. This is a must have fund in your portfolio.

Mid cap Fund : This funds will invest majority of there investments in Mid-size companies only. This fund can be added in your portfolio for little aggression.

Small cap Fund : This fund will invest majority of its investments in Small- cap companies. This is the most risky fund among all the cap-size funds. since its most risky it can sometimes gives you very high returns over long term.

Balanced Fund : This kind of funds are more stable and less volatile as compare to pure Equity fund. In this kind of funds there is reasonable investment in Debt and as well as Equity. hence its less volatile and more secure compare to pure equity fund.

Debt Fund : This kind of funds are used for short term investments. This fund mostly invest in government securities and bonds. Most of this funds can give you returns between 6% to 12%. If you want to park your huge money which is just lying in bank account then its much smarter choice to invest in debt fund.

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