Should we directly invest in asset classes?
Investing in debt or equity wouldn’t be safe enough. Before investing in any scheme or any company you should know 2 major things, one is knowledge about financial markets & another one is trends of the company and an in-depth research of the company you are willing to invest in. Still you don’t have a surety that your investments are going to generate good returns. In this post you will be introduced to the concept of mutual funds where investing not only into equity but also debt and many other asset classes together.
The line is very famous as “mutual funds are the market subject to risk.”
What are Mutual funds -
Well mutual funds are very safer than investing directly in stocks or bonds unless and until you are investing in government securities. A mutual fund is a pool of funds where many different kinds of people add their money and further the fund manager invests it in the type of fund security you want to invest in.They are more liquidable than the securities which are invested directly. So mutual funds are a vast market, where you can invest in either equity funds, debt securities or a mixture of both, hybrid funds where you invest in both with a detailed ratio. How would you know that your money is going to the right place?
Fund Manager -
The fund manager is the person who guides you through your investment journey and also surely invests for you. He shows you possible outcomes or the future values of the scheme you invest in. The major role of the fund manager is to manage their trading activity and suggest patterns and trends followed in the market. They oversee mutual funds or pensions, manage analysts, conduct research, and make important investment decisions.
Schemes Information -
So when you plan to invest in equity funds you are given some choices to invest, basically it is rated by companies performance and stock growth. They are rated as 1- 100th large cap companies on Nifty 50, 101th-250th mid cap companies and 251st onwards in terms of full market capitalization, and are called small cap companies. As the rank decreases the risk integrated with the scheme gets higher, still the lower rank companies have more potential to overperform the market, as the higher ranked companies have a stable growth rate.
These 3 types of schemes are divided into many policy funds. In equity funds there are many types of sub categories, sub categories such as ELSS, sectoral fund, dividend yield fund, sectoral, focused and some more. So you can actually invest in very specific areas.
On the other hand just like equity there is a full other fund of debt securities. Debt is more shortened in the time period, in the debt time period is very important while paying the future principal. They are also divided for the credit risks which shows the ability of the lender to pay the principal with the interest. Next there is also an area where you can invest in government bonds named as gilt funds which is also a sub category in debt funds. You can think of it as a treasury bill of India.
Hybrid Funds -
Next mixing the equity and debt you can invest in Hybrid funds. Hybrid funds are where you can invest both in equity and also in debt. The risks in hybrid funds depend on the ratio you invest in. Well when you invest for a shorter period of time as I said that equity is very risky in a shorter period but can give very good returns too on the other side the debt will give stable income with low amount of risk. So the hybrid funds give long term appreciation through equity and short term stability through debt securities. Mostly all the sub categories in the hybrid funds are related to the ratio sharing both asset classes. So basically hybrid funds are done to experience a new type of asset through investing both, such as conservative hybrid fund where you invest 75% to 90% in debt and 10% to 25% in equity, so here your main objective is to get stable returns from debt but with some higher returns from equity and sharing the risks from both sides. You can also sell your hybrid funds in a balanced hybrid fund scheme where while you get returns you can also sell some part or the full hybrid fund to someone else at a higher price point. The fund manager in these hybrid schemes plays a very important role while you are investing in a dynamic asset hybrid scheme where the fund manager can allocate your money by his or her choice. They keep changing their decision by seeing the market condition. Not only in equity and debt but you can also invest in other asset classes such as gold, real estate but usually debt and equity are the main ones.
Majorly Mutual funds is a safer option due to a well assisted program and help generated by the fund manager plus increasing your options for investments in multiple schemes.
Sources:-
https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.fincash.com%2Fl%2Fmutual-funds-india&psig=AOvVaw0Kt5wFnhwqDW8so6-QkcdV&ust=1685085560012000&source=images&cd=vfe&ved=0CBEQjRxqFwoTCOjRiYP3j_8CFQAAAAAdAAAAABAE
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