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Part - IV

Balanced Funds provide both growth and regular income by investing in equities and fixed income securities. The investment in shares and securities are proportionate to the extent as mentioned in the offer document. It implies that the managers of these funds use these ratios one way or the other to take advantages of high interest rates and stock market growth. Such funds are suitable for investors willing to take risk in order to achieve both income and capital appreciation. The net asset values of such funds are likely to be less volatile compared to that of pure equity funds. Some of the common balanced funds operating in India are Alliance 95 Fund, Birla Balance Plan A and Plan B, JM Balanced fund, HDFC Balanced Fund, etc.

Income Funds aim to provide regular and steady income to investors. Such schemes invest in the fixed income securities such as bonds, corporate debentures, Government securities, etc. The net asset value of such funds are affected due to the changes in the interest rates. If the interest rates fall the net asset value of such funds increases in the short run and vice versa .The long-term investors may not bother about these fluctuations.

Money Market Funds invest in debts with short-term maturities of (1 day - 1 year). The main objective of these funds is current and stable income. They include certificates of deposit, commercial paper, repurchase agreements, etc. The examples of Money Market Mutual Funds are Alliance Cash Manager, Principal Money Market fund and Templeton India Money Market fund.

Classification of Mutual Funds on the Basis of Type of Investors

On the basis of investors type Mutual funds can be classified as Debt Funds, Equity funds, Gilt funds and ELSS. Debt funds provide investors with regular dividend payments. Equity funds invest their pooled money in equities only. A fund may invest its money only in the stocks of established companies, companies in fast growing industries, or companies in one specific industry. A mutual fund’s potential risk and rewards will vary depending on the kind of investment it makes. The examples of equity funds are UTI Petro Fund, Alliance basic fund and Tata select engineering.

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* Contributed by -
Sarthak Kumar Rath,
PGDBA (Finance), ICFAI Business School,
Currently working as Associate Consultant at ICIT Software Center Pvt. Ltd.