There are various types of mutual funds. We can segregate mutual funds based on their underlying assets such as equity, debt or gold into different categories, such as equity mutual funds, debt mutual funds and hybrid funds. These funds have different risk profiles and investment objectives.
So, there is not one mutual fund that is best for everyone. The best mutual fund for you will be the mutual fund/s suitable for your investment objectives, risk tolerance, and investment horizon.
For example, let us assume you are building an investment corpus for your child’s higher education after 15 years. It is this case, as you are investing for the long term, equity mutual funds can be the best option for you. However, there are other sub-categories within equity mutual funds, such as large cap funds, mid-cap funds, and small-cap funds. Here, you can decide to invest in a large cap fund or small-cap fund based on your risk-taking capacity. A small-cap fund carries more risk than a large cap fund as a large cap fund invests predominately in large companies that are market leaders with strong financial positions. Large companies are better able to tide over business cycle downturns than small cap companies.
You might also have more than one goal. If your second goal is to buy a sedan in the next three years, then investing in equity funds for this goal might not be the best option. Debt mutual funds that are relatively less volatile than equity funds may help you achieve your goal of buying a sedan.
Equity funds
These are mutual funds mostly invested in stocks, it could either be actively or passively managed. Equity funds or stock funds are characterized according to the geographical location, company size, and the investment style of the holdings.
Equity mutual funds are one of the best mutual funds options for new investors in the market with little or no idea about investments or have little capital to invest.
Equity funds are the best mutual funds to invest in for the long term. Opt for a growth mutual fund option to easily reach your long-term goals, as the fund’s returns will compound over time.
In the scheme information document, you will find all the relevant details, such as the asset allocation and objectives.