A mutual fund collects money from investors and invests the money on their behalf. It charges a small fee for managing the money. Mutual funds are an ideal investment vehicle for regular investors who do not know much about investing. Investors can choose a mutual fund scheme based on their financial goal and start investing to achieve the goal. 

How to invest in mutual funds? 

You can either invest directly with a mutual fund or hire the services of a mutual fund advisor. If you are investing directly, you will invest in the direct plan of a mutual fund scheme. If you are investing through an advisor or intermediary, you will invest in the regular plan of the scheme.

Types of Mutual Funds in India - 

The Securities and Exchange Board of India has categorised mutual fund in India under four broad categories: 

  • Equity Mutual Funds
  • Debt Mutual Funds
  • Hybrid Mutual Funds
  • Solution-oriented Mutual Funds

 Equity mutual fund scheme: These schemes invest directly in stocks. These schemes can give superior returns but can be risky in the short-term as their fortunes depend on how the stock market performs. Investors should look for a longer investment horizon of at least five to 10 years to invest in these schemes. There are 10 different types of equity schemes.

Debt mutual fund schemes: These schemes invest in debt securities. Investors should opt for debt schemes to achieve their short-term goals that are below five years. These schemes are safer than equity schemes and provide modest returns. There are 16 sub-categories under the debt mutual fund category. 

Hybrid mutual fund schemes: These schemes invest in a mix of equity and debt, and an investor must pick a scheme based on his risk appetite. Based on their allocation and investing style, hybrid schemes are categorised into six types. 

Solution-oriented schemes: These schemes are devised for particular solutions or goals like retirement and child’s education. These schemes have a mandatory lock-in period of five years. 

Mutual fund charges: The total expenses incurred by your mutual fund scheme are collectively called expense ratio. The expense ratio measures the per unit cost of managing a fund. The expense ratio is generally in between 1.5-2.5 per cent of the average weekly net assets of the schemes.