MF Query Board

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Which type of mutual fund is the best to invest in?

-Mahesh Rajput

At a broader level there are three main categories of mutual funds: equity-oriented schemes, debt-oriented schemes and hybrid schemes. Equity-oriented mutual funds predominantly invest in equity and equity-related instruments, debt-oriented mutual funds invest in debt and money market instruments and lastly, hybrid mutual fund invest in equity and equity-related instruments as well as debt instruments. As per SEBI, there are 10 equity-oriented schemes, 16 debt-oriented schemes and six hybrid schemes available. The best type of mutual fund is based on the type of investor, his risk appetite and investment horizon.

An aggressive investor or investor who has higher risk tolerance and wants to invest for a longer duration and receive higher returns should invest in equity-oriented mutual fund schemes. A conservative investor or investor who has lower risk tolerance and wants assured and safe returns should invest in debt-oriented mutual fund schemes. And lastly, an investor with moderate risk tolerance who wants exposure of both debt as well as equity should invest in hybrid mutual fund schemes.

Where should one invest for achieving short-term goals?

- Bhakti Jain

Individuals have various short-term as well as long-term goals. There are various short-term commitments which individuals have to meet. There are several options available for short-term investments. Generally, it’s recommended to invest in debt instruments for the shorter term as they are less volatile in nature and offer assured returns with capital protection. Investing in equity might be very risky in the short term as equity markets are highly volatile in such a short period and might not deliver your expected returns. They may also wipe off your capital in case of a market drawdown.

One should invest in debt mutual funds which have shorter Macaulay duration. You can choose liquid funds, low-duration funds and ultra-short-duration funds if your goal is within a year. And if your goal is of 1-5 years then you can invest in short duration funds, money market funds and medium duration funds. You can also invest in bank fixed deposits or bank savings account for one or two years as per your goal as they offer stable and assured returns, albeit lower returns. Before investing in any instrument you should assess your risk profile, investment horizon, expected returns and goals.