"Importance of mutual fund category."

How many categories of the mutual fund do you know?

You might have heard about DEBT fund like Short term debt fund, EQUITY fund like Large cap fund, and liquid fund for building the emergency corpus. But mutual fund categories are way beyond these regular categories.

You might have heard from most of the investors that you should invest for a longer period of time, nothing wrong with this approach but at certain times we select the debt category of the mutual fund even for a longer period of time wherein this time we should have selected the equity category of the mutual fund considering the risk associated with that. Last sentence we have mentioned “risk associated with mutual fund which can be reduced with investment time frame”.

That is why learning about different categories of mutual fund with investment time frame is important.
Is this true that we should go with a debt fund if the time frame of investment is less than 3 years or if we want to have a regular income?

We may say the answer is yes. But still which debt category to select like Ultra short term fund, Short term fund, Low duration fund, Medium duration fund, Corporate bond fund, Gilt fund with 10 years of maturity? The question remains unanswered most of the time because each category invests into the papers having different maturity time frames.

Is this true that we should go with an equity fund if the time frame of investment is greater than or equal to 5 years?

We may say the answer is yes. But still which equity category to select like Large cap fund, Flexi cap/ Multicap fund, Mid cap fund, and Small cap fund? The question remains unanswered most of the times because the risk associated with each equity category is different and may decrease with an increased time frame.

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BITSTEP’S “GRLT” concept

GRLT stands for “Goal, Risk, Liquidity & Tax”.

Have you given thought to “GRLT” concept of investment learning?
“Goal”: It is the most important aspect to consider for investing. It will give purpose to your investment.
For example, you can invest for Education fees, marriage, child graduation, child post graduation, retirement corpus, regular income after retirement, and wealth creation.
“Risk”: Second most important aspect is a risk. We will try to define it in number terms. For example, one mutual fund in 3 years of time frame is expected to give 42 % absolute return but at the same time it may give -5% returns. So if you compare with 8% per annum of fixed deposit, in 3 years you can have 24% of the return. For this excess of 18% (42%-24%) are you ready to take a -5% return risk ?
“Liquidity”: Third important aspect is liquidity. In simple terms in how many days you sell your asset and get cash considering exit load/ premature penalty. So usually it is considered that cash can be generates faster by the selling of mutual funds, stocks than selling Real estate.
“TAX”: Last important aspect is tax. Why BITSTEP kept it at last because when you are investing, your focus should be on return more than how much tax you are going to pay.
In the BITSTEP investment learning product, we have given more importance to the GRLT concept.

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Disclaimer: Learning from game is for educational purpose only. It is neither recommendation nor advice. For Certain goals proportionate data is used, interpretation may vary from person to person.