Types of mutual funds based on investment goals

Growth funds, Income funds, Liquid funds, Tax saving funds or ELSS and Pension comprise the various types of mutual funds from the investment point of view. Depending in your investment outcomes, they offer varying levels of return on investment, liquidity and flexibility.

Growth funds offer maximum capital appreciation. However, they invest in high growth stocks which are inherently high risk. They invest in companies have had a progressive track record of revenue growth.As an investor, you should only invest in growth funds if you are an aggressive risk seeker and want to invest for a tenure of at least 5-10 years. Exiting at an early stage can invite hefty exit load fees.

An income fund mainly focuses on producing regular income for the investors by investing in government securities, corporate bonds, money market instruments, certificate of deposits and debentures.Investors who want to have a regular and stable income can invest in income funds. These funds are comparatively less risky than growth funds. An investor can obtain higher returns by taking advantage of interest rate volatility. The rate of returns ranges from 7-9%. It is a good alternative to investments such as fixed deposits.

Liquid funds invest in securities with residual maturity of up to 91 days. These funds do not have a lock-in period. They are very low risk and provide moderate returns on investment.Investors who have surplus capital and want to invest for a short period of time can opt for liquid funds.

Equity-linked savings scheme (ELSS) or tax saving funds is a type of mutual fund where the majority of investments of the total assets are made in equity and equity related instruments. This scheme has a lock-in period of 3 years and qualifies for tax exemption under Section 80C of the Income Tax Act, which allows a tax exemption of approximately Rs. 1, 50,000.Compared to investment options such as tax saver Fixed Deposits, ELSS provides much better returns at a rate of 15% - 18%.

Pension funds have gained in popularity over the last several years. They are ideal for investors with a long term horizon. The main purpose for investing in pension funds is to secure a post-retirement income. They invest in equity and debt instruments. A combination of equity and debt investments helps investors overcome the inherent deficiencies of both and maximize Return on Investment (ROI).An investor can redeem or withdraw the returns on a pension fund as a lump sum or as a regular pension or even a combination of the two.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.