Types of mutual funds

These funds mainly invest in equity shares of companies listed on the stock exchange. Since equity investing carries a higher risk as well as higher return potential, if you are comfortable with this investment option, you may invest in equity funds.

These funds mainly invest in debt securities such as bonds, debentures, commercial paper, etc. Since debt investing carries a lower risk and offers reasonable returns, these funds are suitable for investors who want to protect their capital while earning reasonable returns.

If you want to invest some of your funds for a very short period of time – say a few days to about a month – you can invest in liquid funds. These are essentially debt funds which invest in debt securities with very short durations such as certificates of deposit, commercial paper, fixed deposits, bills discounted, etc.

Most Indian households invest in gold. Gold is a good investment option when financial markets go through difficult times or in times of rising inflation or when there is turmoil due to terrorist attacks or war-like situations. However, investing in physical gold (bars, coins, jewelry) carries its own risk. Instead invest in a gold fund. Gold funds (Exchange Traded Funds) invest in physical gold or companies engaged in gold mining.