For long, market gurus have been at loggerheads over which matters more to investors — ‘timing the market’ or ‘time in the market’.
An indisputable answer to this would be that both are necessary to make investments worth the while. While a longer time horizon can help diffuse the risk in returns, getting the market timing right can be even more rewarding.
But for retail investors, timing the market — which would essentially mean buying low and selling at peaks — could be a daunting task.
Investing in equity mutual funds offers just the solution. These funds, run by professionals who call the shots on your behalf, are in a better position to gauge over-heated or undervalued markets.
Sample this: Over a 20-year period, while the Sensex delivered a compounded annual return of 11 per cent, top performing diversified equity funds raked in a tidy 23 per cent return for investors. But with 42 fund houses offering over 300 equity-oriented schemes, investors are often intimidated by the plethora of choices. And these are just one category of funds.
Debt funds, which carry relatively lower risk than equity funds, feature a whole gamut of fund categories and strategies that are even more complex. The jargon used to describe these funds can easily put off the investor.
The simplest way to classify mutual funds is by way of the various asset classes — stocks and bonds — that they invest in. The three broad categories — equity, hybrid and debt — are further divided by fund houses based on style, objective and strategy.
While the differentiation is endless, what matters to you, as an investor, is how well you can construct a fund portfolio based on your risk tolerance, investment objective and time horizon.
We attempt to break down various categories of funds and map their investment objectives with investors’ risk profile.
