There are broadly three types of mutual funds.
- Liquid funds
- Debt funds
- Equity funds
Liquid funds don’t have any entry and exit load. Their AMC (Annual Maintenance Charges) is less than 0.3%. These fall in very low risk and very low reward category.
Debt funds might have some entry and exit load. Their AMC is less than 1 %. These fall in low risk and low reward category.
Equity funds will have some entry and exit load. Their AMC is close to 1.5%. These fall in hight risk and high reward category. These can further be subdivided into three sub categories.
- Micro cap funds (Investment is made in very small companies)
- Mid cap funds (Investment is made in mid size companies)
- Large cap funds (Investment is made in large size companies)
- Exposure to equity funds at any stage should not exceed more than 80 minus your current age.
- Out of that exposure10% can be put into micro cap funds.
- 10% can be put into mid cap funds.
- Rest should be with large cap funds.
As per my understanding the following funds selection should be made in a given scenario.
|I have some emergency fund where to keep that money||Liquid fund|
|I save some money monthly for my kids school fees||Liquid fund|
|I save some money every month for any travel or unexpected expense||Liquid fund|
|I save some money for my kids higher education||Debt + Equity fund|
|I save some money for my retirement||Debt + Equity fund|