A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What are the different types of debt funds?
Debt funds are for investors who seek capital security or regular investment income and/or want to park money for short periods.
But debt funds are of various kinds.
As in banks, you can open a savings account, where you can put and remove money whenever you want. However, there is no point in keeping money idle, if you are unlikely to use it for some time. You can, in that case, open a fixed deposit, in which the money is blocked for a certain period that allows you to earn a higher interest rate. You can also opt for a recurring deposit, where you continue to invest a fixed amount each month for a predefined period of time. All these products help you with different requirements.
Similarly, even among mutual funds there are variants available in the category of debt funds to meet various needs of investors, such as liquid funds, income funds, government bonds and fixed maturity plans.
An investor would be advised to select schemes based on their unique requirements.