Which mutual fund to buy?

There are many types of mutual fund available in the market. Broadly, they can be divided into Equity Funds, Debt Funds and Balanced Funds.

Equity Funds

These funds invest a major part of their portfolio in stocks or equity-related instruments. Equity mutual funds are ideal for investors who want to invest in the stock market. Some of the types of equity funds available in Indian mutual fund market are:

Diversified Equity Funds: Diversified equity funds invest in stocks of different companies across sectors.

Equity Linked Savings Scheme (ELSS): Equity Linked Savings Scheme or Tax-saving funds as they are more popularly known, invest in stocks and equity related instruments and have a lock-in period of three years. These funds offer tax benefit under Sec 80 C of Income Tax Act.

Index Funds: Index funds invest in same stocks and in similar proportion to base index. Performance of index funds is more or less similar to that of underlying index.

Sectoral Funds:  These funds invest in a particular sector or industry of the market according to the investment objective of the fund.

Debt Funds

Debt funds are mutual funds which invest in debt papers issued by government, private companies, banks and financial institutions. These funds are ideal for investors who seek fixed income. Types of Debt funds available in Indian market are Gilt Funds, Income Funds, Monthly Income Plans, Short Term Plans and Liquid Funds.

Balanced Funds

Balanced Funds invest in equity and debt market. These funds are ideal for investors who want safety of income with capital appreciation over a long-term.