Types of specialized mutual funds?

Types of specialized mutual funds?


Even after having discussions with various people and reading different articles, mutual funds remain a daunting decision. Mutual fund is just like a trust that collects money from various investors sharing common investment objective. This money is then invested in different avenues such as equities, bonds, money market instruments and securities. Whatever income or profits are generated from this collective investment gets proportionately distributed amongst the investors. However, some expenses are deducted by calculating the Net Asset Value (NAV) of the scheme.

What is a specialised mutual fund?

The specialised mutual funds primarily focus on specific industries including geographic regions, commodities, industries, sectors, etc. Using these funds like sector funds, balanced funds, asset allocation and target date funds, investors access banking, chemical, real estate, energy and telecommunications.

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Investors aiming to seek exposure to particular segments of the market without buying individual stocks must invest in these funds. These funds have narrow exposure to the market and can earn relatively higher profit potential. However, they can also carry more risk due to lack of diversification.

Here are some types of mutual funds based on speciality:

  1. Sector Funds – These are funds invested in specific market sectors such as infrastructure funds, which are invested only in infrastructure-related instruments and industries. Returns on these funds depend on the market performance of the chosen sector.
  2. Index Funds – These funds are invested in instruments that represent a particular index on exchange. For example, purchasing shares representative of BSE Sensex.
  3. Emerging market Funds – The investments made in developing countries showing good prospects for the future are called emerging market funds.
  4. International Funds – The investments done in companies located in other countries as foreign funds are called international funds.
  5. Global Funds – As the name suggests, these funds can be invested in companies located anywhere on the globe. The difference between global and international funds is that in global funds, the investments can be made in companies located in own country as well.
  6. Real estate Funds – These funds are invested in real estate companies only such as realtors, property management companies, builders as well as in companies providing loan to real estate projects. Real estate investment can be made at any stage be it planning phase, partially complete or completely developed.
  7. Commodity focused stock Funds – These funds are invested in companies operating in the commodities market like mining companies and commodities producing companies.
  8. Market neutral Funds – The market neutral funds are invested in treasury bills, ETF and securities that focus on fixed and steady growth. These are called market neutral as they don’t invest in the market directly.
  9. Inverse Funds – Unlike traditional funds inverse funds are the ones that perform well when the market falls and bad when the market is doing well. Invest in these funds only if you are ready to take huge risks and bear losses.
  10. Asset allocation Funds – Asset allocation funds are the ones in which the portfolio manager can adjust the allocation of assets to achieve set goals. These are of two types, target date type and target allocation.
  11. Gilt Funds – Gilt funds are invested in government securities for a long period of time.
  12. Exchange traded Funds – These funds are a compilation of open and close-ended mutual funds that are traded on the stock markets.

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