Page 23 - Banking Finance September 2024

ARTICLE

money market instruments with a maturity of up Balanced Advantage Funds: These funds
to 91 days. Liquid funds are considered low-risk dynamically adjust their equity and debt
and are ideal for investors seeking high liquidity allocation based on market conditions. They are
and capital protection. suitable for investors looking for a balanced

Short-Term and Ultra Short-Term Funds: approach that adapts to changing market
These funds invest in debt securities with shorter environments.
maturities, typically ranging from 1 to 3 years. Multi-Asset Allocation Funds: These funds
They offer slightly higher returns than liquid invest in at least three asset classes, such as
funds while maintaining relatively low risk.
equity, debt, and gold. They offer diversification
Income Funds: Income funds invest in a mix across asset classes, reducing the overall risk.
of government and corporate bonds with varying
maturities. These funds aim to provide a steady 4. Index Funds and ETFs
income stream and are suitable for investors with
Definition and Characteristics: Index funds and
a moderate risk appetite.
Exchange-Traded Funds (ETFs) are passive
Gilt Funds: Gilt funds invest exclusively in investment vehicles that aim to replicate the
government securities with varying maturities. performance of a specific index. They offer broad
They are considered low-risk investments, as they market exposure and typically have lower expense
are backed by the government, but their returns ratios compared to actively managed funds.
are sensitive to interest rate movements.
Index Funds: These are mutual funds that track a
Credit Risk Funds: These funds invest in lower-
specific index, such as the Nifty 50 or the Sensex.
rated corporate bonds with higher yields. While
The fund manager's role is to ensure the portfolio
they offer the potential for higher returns, they
mirrors the index's composition, making it a low-cost
also come with a higher risk of default.
investment option.
3. Hybrid Funds ETFs: ETFs are similar to index funds but trade on
Definition and Characteristics: Hybrid funds, also stock exchanges like individual stocks. Investors can
known as balanced funds, invest in a mix of equity buy and sell ETF units throughout the trading day
and debt instruments. The asset allocation between at market prices. ETFs offer flexibility and lower
equity and debt varies based on the fund's objective, expense ratios, making them an attractive option for
offering a balance between growth and income. cost-conscious investors.
Hybrid funds are suitable for investors with a
moderate risk appetite who seek diversification in a 5. Tax-Saving Funds (ELSS)
single fund.
Definition and Characteristics: Equity Linked
Sub-categories: Savings Schemes (ELSS) are equity mutual funds
Aggressive Hybrid Funds: These funds invest that offer tax benefits under Section 80C of the
primarily in equities (65-80%) and the remainder Income Tax Act, 1961. Investors can claim a
in debt. They are suitable for investors seeking deduction of up to INR 1.5 lakh per financial year,
higher returns with some exposure to debt for making ELSS a popular choice for tax-saving
stability. investments. ELSS funds come with a lock-in period
Conservative Hybrid Funds: These funds invest of three years, and they primarily invest in equities,
primarily in debt instruments (75-90%) and the offering the potential for capital appreciation along
remainder in equities. They are suitable for with tax savings.
conservative investors looking for stability with
some exposure to equity for growth.

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