A mutual Fund collects money from investors and invests them in a variety of financial assets including shares of companies, bonds and other debt instruments, money market instruments, financial derivatives, futures and options. Some mutual funds even invest in real estates, bullion, and commodities. Over a period of time several types of mutual funds have emerged and some of them are briefly described below:Open-ended Mutual Fund allows the investors the option of entry and exit, that is, buying and selling as they may wish. Such funds churn out their portfolios fast with an objective to trade in financial assets and make short term profits for their investors.Close-ended Mutual Fund collects the funds from investors in one go and gradually invests and de-invests the money so raised. Their approach investing with a long term perspective.
Apart from these two basic types of mutual funds, many other types of mutual funds have come into existence. For example, an equity fund invests in equity mostly on a long term basis; a bond fund plays safe and invests in interest bearing instruments; an index funds invest in shares of a particular fund with the objective of at least to perform in alignment with the performance of that particular index. There are also funds that invest in particular sectors of economy like in energy sector. Some funds invest in emerging markets. The types are innumerable depending on a funds investing strategy and the investments made by them.The types of mutual funds are important but another significant point to consider is the reputation of the fund and their fund managers. Another point that an investor should consider is the timing of his/ her buying and selling for getting best returns from his/ her investments.