What’s should be your strategy for primary market in FY25?

A life without goals and objectives is purposeless, so we must set a clear and attainable objective in life. Similarly, investing in a financial product especially mutual funds without understanding their clear objective, can be confusing and lead to an incorrect financial decision if you lack the awareness of what the product caters to.

Knowing the product investment objectives is very important, especially when it comes to mutual funds. For instance, if an investor invests in a large-cap mutual fund thinking it has the lowest risk with high returns, then they might be wrong as a large-cap mutual fund falls under the high-risk category. Let’s take a look at the below funds based on their core objectives as there are a plethora of mutual funds that offer investment choices based on your risk appetite and financial objectives:

Growth or equity-oriented mutual fund schemes

As per the Association of Mutual Funds in India (Amfi), there are 11 mutual funds under these schemes like the multi-cap fund, large-cap fund, mid-cap fund, sectoral fund, and equity-linked saving scheme fund, amongst the others.

If you invest in equity growth funds, you are primarily investing in equities. These funds’ primary objective is long-term capital growth. At least 65% of their assets must be invested in equities and equity-related instruments. These funds may invest in a variety of industries/sectors or may specialise in one or more. These funds are appropriate for investors with higher risk tolerance and a long-term financial aim.

Income or debt-oriented mutual fund schemes

Under these schemes, there are 16 different types of debt mutual funds. On the other hand, debt funds typically invest approximately 65% of their assets in fixed-income securities such as bonds, corporate debentures, government securities (gilts), and money market instruments. These funds have a lower volatility profile than equities funds and cater to investors with a medium to low-risk appetite.

Hybrid schemes

As per Amfi classification, now there are six different types of hybrid schemes with other investment objectives. Balanced mutual funds invest in both equities and fixed income instruments intending to achieve both stability of returns and capital appreciation. Generally, these funds invest approximately 60% in equities and 40% in financial securities such as bonds and debentures.

Solution-Oriented Schemes

The retirement fund and a children’s mutual fund fall under these solution-oriented schemes. Solution-oriented funds can be customised to meet an investor’s future financial needs. These funds invest in long-term income. This fund contributes to the development of a corpus, which ensures adequate capital for a specific objective.

To achieve consistent returns, retirement mutual fund plans typically invest in low-risk investment options such as government securities. Post-retirement, these funds provide a steady source of income; a retiree receives an annuity on their investment until their demise. These funds are invested on behalf of investors, and the revenue generated by those investments is given to the pool of funds in the form of interest.

The fundamental objective of a retirement savings fund is to provide a steady stream of revenue for an investor during the absence of income. It can be viewed as deferred pay, providing individuals with financial security and sufficient capital to meet their basic needs.

Investors invest in children-oriented mutual funds primarily for capital appreciation of the corpus invested. The returns generated by such schemes can be used to cover the costs of children’s higher education and marriage, as well as other corresponding funding requirements.

Other schemes

The other schemes comprise mutual funds such as index funds, gold exchange-traded funds (ETFs), funds of funds investing overseas, and other ETFs. Index funds are linked to a specific index, such as the Bse Sensex or S&P CNX Nifty. Their performance is directly related to the index’s outcomes. The portfolio consists of stocks that correspond to an index, and the weightings assigned to each stock correspond to the weightings assigned to the index. As a result, the returns will be roughly comparable to those generated by the index.

Fund of Funds (FoFs) is a type of mutual fund that invests in other mutual fund schemes. The Fund of Funds invests in other mutual fund schemes in a manner similar to how funds invest in stocks and bonds. As a result, this mutual fund scheme may invest in both debt and equities, depending on your investing objective.

The FoFs may be domestic or international in nature. The fund manager invests in units of offshore mutual fund schemes in the case of overseas FoFs. The fund manager verifies that the investment philosophy and risk profile of the target fund align with the fund’s mandate. The primary purpose is to accumulate wealth over time.