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Mutual Funds for Tax Saving

May 20, 2022

One of the largest avenues of income for most governments is the taxes that it’s citizens are required to pay, in various forms. This income is then used to fund the development of the country in various areas. We should never consider income tax as a burden, but as an essential responsibility that helps move the wheels of the country’s economy. 

The Indian government has many provisions that allow you to make investments of your choice to increase your wealth, and at the same time, help you cut a significant amount from your taxable income. Cutting down on taxes by making investments also has a number of benefits, which we shall discuss below. 

Why should you incorporate tax-saving investments to your portfolio? 

Incorporating tax-saving investments to your portfolio ensures that you have a head start on your financial future. A longer duration for your investments to grow not only means more returns for you when the investment matures, but also that you get them when you need them the most, which is towards the end of your career. The earnings from these investments that you make over a long period of time will help you cover for your expenses later in life. 

The habit of planning your investments to save tax is also financially healthy because you tend to set aside a portion of your income in order to make investments, which can help protect your finances and future in the long run. Tax-saving vehicles also offer multiple other benefits apart from just helping you save your taxes. They are mostly long-term plans that build a corpus over a long period of time and help you meet your long-term financial goals, like retirement. 

Tax Saving Mutual Funds 

As already implied by the name, these are just like other mutual funds, but with an added benefit of saving taxes. The speciality of these tax saving mutual funds is that they make investments which provide tax redemption benefits under Section 80C of the Income Tax Act. Most of these Mutual Funds are Equity Linked Savings Schemes (ELSS) which investment into the equity market, and are growth oriented. They usually come with a lock-in period of around 3 years, which also helps you inculcate a good habit of investing. 

How do they work? 

When you invest in a mutual fund, your money is pooled into a larger fund. This accumulated capital is then invested into the equity market in a manner such that even if one of the investments incurs a loss, the other investments help mitigate the same. 

The long term capital gains from these Equity Linked Savings Schemes are not taxed, and the investments made are eligible for a tax deduction of upto Rs.1.5 lakh. 

Tax saving mutual funds make investments with at least 80% of their assets into equities. These mutual funds also allow you to invest all the year round, since these are open-ended in nature.  

Schemes under the ELSS funds can be categorised into two section: dividend schemes and the growth schemes. The dividend schemes provide you an extra income as dividends from the fund house from time to time, depending on the availability of the surplus which is distributable. On the other hand, the growth schemes operate towards generating long-term returns that you can redeem upon maturity.  

The dividends you derive from dividend schemes are untaxed, and can be withdrawn even during the lock-in period or can also be reinvested into the fund, making them eligible for tax benefits. However, the growth schemes under ELSS do not provide these benefits. 

Benefits of these mutual fund schemes 

The tax saving mutual funds provide you with multiple benefits, like making your investment eligible for tax benefits upto Rs.1.5 lakh. Furthermore, the capital gains that you make from these funds in the long run are devoid from taxes. You can also make investments in monthly instalments through SIPs, which would ensure that you do not incur a heavy financial burden while making the investments, and negating the need for a lump sum investment initially. 

These funds are also highly diversified, which means that your investments are considerably safe from the market fluctuations because of the risk being spread across several verticals. Although you cannot withdraw the principal before the lock-in period ends, you can still choose to withdraw the dividends. Nevertheless, in case you choose to not withdraw the investment, it will form a substantial corpus which you can later utilise to fulfil your financial goals and needs.  

Now that you have a fair idea of how you can save tax using mutual funds, and the benefits that they present to you, you can choose to make investments and start your financial journey. However, it is imperative that you always consider the opinions of your financial advisor before making any investment decisions. 

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Mistakes to Avoid to Grow your money through SIPs

May 12, 2022

One of the most common methods of growing your wealth is through a Systematic Investment Plan or SIP. As the name suggests, an SIP means saving small sums of money over a period of time, which ultimately results in you ending up with quite a large corpus. An SIP is one of the most convenient investment vehicles that lets you accumulate a considerable amount of wealth in the long run. 

In order to ensure that you make the most of your SIPs, and grow your wealth to its fullest potential, there are a few basic things that need to be taken care of. Let us discuss some of the common mistakes made by investors that you need to avoid to make the most out of your SIP. 

Do not set unrealistic goals 

One of the most important things to consider when making an investment decision is to set a goal. Having a definitive goal will give you clarity on several factors, like the tenure of your investment, the number of instalments you have to pay, the target amount, and the time it would take you to fulfil your goal.  

Having goals that cannot be monetized within the given time frame makes the goal unrealistic, which can harm your goals and lead you to make investment decisions that are not right for you. Setting a goal that is achievable and suitable for you according to your income and tenure will help you choose the right SIP. 

Increase your SIP investment amount 

It is always advisable to make investments in an SIP, or any investment, for that matter, based on your income. It is also important to increase your contributions as your income and surplus increase year on year. As you move ahead in your career, your income increases, which results in a better, more expensive lifestyle. Over the course of time, it is crucial to ensure that your investments also increase along with your expenses so you can maintain the same quality of life.  

Increasing your SIP contributions over time ensure that your corpus grows and you are able to derive the maximum benefit through compounding and reap the  maximum possible returns on your investment. 

SIPs & market fluctuations 

It is always advisable that you invest in equities in the long term. Equity funds perform the best when there is a long-term timeline along with a proper target amount. However, the market is meant to be volatile and market fluctuations are a part of the investment journey. You should never cancel your SIP during periods of market correction since it can have a negative effect on your investment. While planning your SIPs, you should have a somewhat flexible timeline that lets you accommodate for market fluctuations. During the ups and downs of the market, remain patient instead of cancelling your Systematic Investment Plan. 

Review your SIP performance 

Investing in an SIP is one of the first steps of your investment journey. Therefore, you need to monitor the investment from time to time, to ensure that your long-term goals are in sync with your SIP. 

It is important for you to review your SIPs to help you understand which of your mutual fund schemes have performed according to your expectations and which haven’t. If you find that one of your schemes has been underperforming for the last 18-24 months, you may choose to exit the scheme. 

Furthermore, if you monitor your SIPs periodically, you also get an idea of how to rebalance your portfolio depending on your asset allocation. 

Invest early 

You can invest in an SIP at any point in your life, but it is advisable to start investing as early as possible. Investing early ensures that you get the chance to accumulate a higher corpus, and have a high wealth ratio. Even if you have a lower contribution margin, provided you start early, you have the chance to maximise your returns through the power of compounding. The power of compounding ensures that your principal earns returns, and your returns earn returns. The earlier you invest, the more time you leave for your principal to compound. 

Have a disciplined approach 

When investing in an SIP, it is important to understand that you have to remain invested until the investment tenure is over. In case you choose to leave the SIP, you may not be able to fulfil your financial goals. Therefore, it is important to be disciplined when making contributions to the SIP. 

Before you start your investing in your SIP, you should decide on an amount that is feasible for you, after you meet your regular financial obligations. You can use an SIP calculator to estimate if an SIP will be able to fulfil your investment needs based on your budget, your risk tolerance and the tenure of your investment. It is important that your investment amount is not extremely high, leaving you enough room to navigate your regular expenses. 

Following these easy, but important steps ensures that you make the most out of your SIPs. However, always understand that these investments are subject to market risks, and you should always consult your financial advisor before making a financial decision. 

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How does determining your investment objective indicate your risk profile?

May 9, 2022

All investments carry with them a disclaimer that states that returns are subject to market risks. Investing in the market carries with it a certain element of risk, and you must understand these risks before you make any financial decision. While it is important to make investments to fulfil your financial goals, it is crucial that  you understand the risks to avoid any mistakes that may set you back. Your risk profile indicates the kind of investment vehicle you should choose, and your investment objective determines your risk tolerance.

Let us first understand what a risk profile is, followed by how your investment objective can determine the risk profile you’re a part of.

What is a risk profile?

A risk profile can be defined as your willingness or tolerance toward taking risks. Creating a risk profile is an imperative process towards determining the right investment asset allocation in your investment portfolio. It enables you to identify the acceptable amount of risk that you can endure. In this particular case, risk refers to your tolerance to market fluctuations and volatility.

If you’re looking for your principal investment amount to not decline, and are willing to let go of potential capital appreciation in this process, you have a low willingness to take on market risks, and hence have low risk tolerance. On the other hand, if you desire to make the highest possible earnings from capital appreciation, and are willing to take the chance that your principal investment amount may decline if a particular investment may not pan out, you have high risk tolerance.

Your ability to take risks is determined by reviewing your liabilities and assets. If you have more assets than liabilities, you can take more risk, and vice versa. However, your will to take on risks and your ability to sustain them might not always match up. For example, you may have a lot of assets, but are of a conservative nature, and showcase a low desire to take on risks. In this case, the ability and the willingness to take risks are different, which affects the portfolio construction procedure.

Now that we have a fair idea of what a risk profile is, let us understand the factors that determine your risk appetite.

Factors that dictate your risk appetite

Prior Experience: Just like you become better at a sport, or any other task with practice and experience, you gain more experience as you continue investing in the market. Your knowledge of investment products, market trends, your last portfolio, and its performance are all key factors that  are included in your past experience. These experiences make you a veteran investor and can impact your risk appetite.

Present Scenario: Your present age, financial liabilities, income sources, and engagement levels are key determinants of your risk tolerance. If you’re a young investor with no financial liabilities, you can have high risk tolerance. On the other hand, if you are a middle-aged man with a family, you’re unlikely to take heavy risks with hopes of high returns.

Investment objectives: The most important factor that determines your risk appetite is the reason why you started your investment journey and why you’re continuing the same.

How does determining your investment objective indicate your risk profile?

You can begin investing for a plethora of reasons, and every reason has a different mode of investment suitable for fulfilling the objective. From wanting to go on an international vacation, to buying a car, to a retirement plan, everything can be a reason to start investing. Depending on your investment objective, your risk profile can be indicated.

For instance, if you’re starting your investment journey to create a stable retirement plan, it is unlikely that you will undertake huge risks and be an aggressive investor. In this case, you would rather invest in funds that provide consistent market returns despite any fluctuations.

What are the types of risk profiles?

There are three broad brackets in which risk profiles can be categorised into. Based on this categorization, you can identify which profile you come under.

Conservative: A conservative risk profile indicates an investor with a low risk tolerance. If you’re a conservative investor, you will be inclined towards investment methods that are safe and protect your principal corpus. Returns on investments are secondary as long as your investments do not depreciate.

Moderate: If you’re a moderate risk taker, you tend to strike a balance between risk and reward. You would opt for a high returns scheme on an acceptable risk level, but you’d probably skip anything with extremely high risk elements.  

Aggressive: This particular risk profile showcases the most willingness towards withstanding market fluctuations, aiming at high returns on their investments. Usually, this profile constitutes veteran investors who are well versed with the market and investing intricacies. Moreover, these investors also have long-term plans, which is why they are okay with absorbing any short-term market fluctuations.

All being said, fixing your investment objective can help you analyse your risk profile better, and no matter what risk profile you consider yourself to be, you should always consult your financial advisor before making any financial decisions.

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IPO – Terms that you must know

April 29, 2022

Initial Public Offerings, or IPOs, have been on the rise these last few years with a lot of companies going through the process recently. These IPOs have created a huge buzz, and have made a lot of investors curious and willing to invest.  Though they are a fairly commonly seen term nowadays, there are a lot of industry terms that can confuse you, or worse yet, make you shy away from an excellent investment opportunity.

While it is important to know the market and which companies are launching their IPOs, it is also important to have a basic understanding of the terms that can help you navigate your way around these IPOs.

Let’s decode in layman’s terms the commonly used jargon, and hopefully make your IPO processes a little easier.

What is an IPO?

Short for Initial Public Offering, an IPO is the point where any existing company decides to invite the public to invest in them by buying their shares. The company, thereafter, gets listed on the stock exchange and is open for investment by the public, with its stock being publicly traded. Any company can only ever have one IPO, though a company may issue new shares after its IPO is completed. In case a company that is already listed on the stock exchange comes out with a new range of shares, it is known as a Further Public Offer.

Pricing and Book Building

The issue/offer price of a share is the price at which a share is distributed to the general public, before they are traded on the stock market and the price fluctuates according to market trends. The process of discovering the issuing price of the shares is known as price discovery and can be done using two methods.

The first, is called a Fixed Price Issue. In this method, the price of a share is fixed by the company (with the help of its Lead Manager) and applications for shares are invited at this fixed price.

The second method is something called book building, where bids are invited for shares, not at a fixed price, but within a range. The lower limit of this range is called the floor and the higher limit is called the cap. During the bid, you can ask for the number of shares you’d like to have and the price that you are willing to pay for them, within the price band. The actual price is then discovered based on the bids received.

What is an Allotment?

Allotment, in simple terms, can be defined as the process by which you are given shares upon your application. During the book building procedure, there are three kinds of investors who can make a bid for the shares.

The first category of investors are the Qualified Institutional Buyers (QIBs). These consist of mutual funds, and foreign institutional investors. The next is retail individual investors. Any investor that makes a bid under Rs. 50,000 can be labelled as a retail investor. The remaining shares are offered to individual investors with a high net worth (HNI) and the employees of the company.

Depending on how a company chooses to go about its price discovery, there are rules that govern what percentage of shares should be allotted to which investors. For example, if a company chooses a fixed price issue, a minimum of 50% of shares should be allotted to retail individual investors.

Once all applications are received and validated, shares are allotted to investors, with everyone who applied getting their allotments in an ideal scenario. When the number of shares applied for is greater than the actual number of shares available, the IPO is said to be oversubscribed. In these instances, shares are again allotted based on prescribed SEBI guidelines. One scenario worth discussing is if an IPO is oversubscribed to the extent that not everyone who applied during the IPO can even get one share. In these cases, final allotment is decided based on a lottery to ensure no preferential treatment.

What is a Draft Offer Document?

Any company aiming at issuing its IPO is required to file its prospectus with SEBI, which contains all the information about the company. This prospectus also tells you why the company is issuing shares for public investment purposes, along with information about the company’s financial position, and the issuing price of the shares.

The Draft Offer Document is first filed with SEBI, at a minimum of 21 days before filing it with the stock exchange. Prior to filing the Draft Offer Document with the Registrar of Companies (RoC), the document needs to be revised with all suggestions from SEBI.

What is a Red Herring Prospectus?

A Red Herring Prospectus is basically the same as a draft offer document and  contains the same information, without the addition of the number of shares being issued and the price per share. The reason for the prices being undisclosed is that a red herring prospectus is used exclusively for book-building purposes.

Who is an Underwriter?

An underwriter is the entity that picks up the remaining shares at the IPO in case all shares are not subscribed to. An underwriter to an IPO can be a merchant banker, a broker, or a financial institution that has given a commitment to underwrite the issue.

In case an underwriter fails to hold up their end of the commitment of picking up the remaining shares, their licences get cancelled by SEBI.

Who are Lead Managers?

Lead managers are the entities who are responsible for acting as the intermediaries between the company and the investors, with proper validated registration from SEBI. They are merchant bankers who are in charge of the entire issue process. It is a lead manager’s role to certify an issue in accordance with the regulations and carry out due diligence that everything mentioned in the prospectus is correct.

Furthermore, they are also accountable for the book-building process, in which case, they are referred to as the Booking Running Lead Managers. Activities that come after the issue, such as the intimation of the allotments and the refunds, are also taken care of by the lead managers.

There are never any guarantees that you will get an allotment on subscribing to an IPO. However, it always helps when you’re familiar with the terms being thrown around during the process and will hopefully help your next IPO application be a little easier to navigate.

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Factors to consider while choosing a mutual fund

April 21, 2022

Money makes money, is an often quoted mantra and investors are willing to do just that, aiming to fulfil their personal financial goals. However, with the number of options available at hand when it comes to mutual funds, it is very important for us, as an investor, to understand the kind of investment we want to make, and the exact mutual fund we want to invest in.

Choosing the right mutual fund is a two-step process, and we need to carefully consider multiple factors before we lock in on an option. The two factors that matter the most are our appetite for risk and the reason we’re investing in a mutual fund. Even so, it isn’t a one size fits all solution and the same mutual fund scheme is not perfect for all investors.

Considerations before choosing a mutual fund category

Let’s take a look at some of the more crucial ones now:

Investment Objective: The first, and most important thing to consider before you choose a mutual fund category, is the reason for starting the investment in the first place. The investment can be either short or long-term, depending on our financial aspiration. It can be as short as going on a vacation, or as long as the time it takes for us to retire. The mutual fund category choice we make should depend on the goal we want to achieve with it.

Time Horizon: This is the amount of time we want to keep our money invested in the mutual fund scheme. Some funds invest in shorter-dated debt periods than others. If our investment period is more than 5 years, an equity fund is likely the best option for us. For shorter terms, the market can be extremely volatile, which can be more risky, but there is always the chance of higher earnings as well.

Risk Tolerance: Tolerance or risk appetite is the limit of risk that we are willing to take against the money that is invested in the mutual fund category of our choice. As of 2015, SEBI issued a mandate for all mutual funds to carry a riskometer that indicates the risk level of a fund scheme. There are five levels of risk, namely low, moderately low, moderate, moderately high, and high. It is always best to choose a mutual fund category whose risk category matches our risk tolerance.

Measures to look at when choosing a mutual fund scheme

Now that we have discussed the considerations before choosing a mutual fund category, we should also discuss some of the attributes to look at when choosing the best mutual fund scheme for our purpose:

Performance Against Benchmark: This is a comparison of a mutual fund scheme’s performance against a standard benchmark, which is usually chosen  by the mutual fund house. The investment philosophy of a mutual fund scheme can be said to be guided by its benchmark index. Asset allocations of the benchmark index should ideally be the same as the investment objective of the scheme. For example, the benchmark of a mutual fund with a banking index should be focused on banking stocks. Comparisions against this benchmark will usually reveal whether our fund itself is performing above or below expectations.

Performance Against Category: While choosing a mutual fund scheme, it is important for us to compare the performance of that fund against other mutual fund schemes in the same category. Doing this gives us a broad idea of the fund’s performance, and ensures that we have an understanding of the fund before investing. However, such comparisons should be done only across the same type of mutual fund schemes. For instance, a small-cap mutual fund should only be compared with other small-cap funds.

Performance Consistency: As already stated earlier, the market is a very volatile environment, and it is critical that we know if a fund performs consistently. Consistent returns are important to ensure that our money does not to go waste, and that we get returns during both market ups and downs.

Experience of the Fund Manager: As an investor, we should always be aware of the capabilities of the person who will be handling our finances. It is important to understand how well a mutual fund scheme is being managed by the fund manager.

Company Legacy: Mutual Fund investments should always be made in fund schemes that are brought to us by credible financial institutions. Not only does this remove any chances of fraudulent activities, but it also ensures that the fund is consistent, and that our investments are well researched. A poorly selected stock can cause losses, which is why it is imperative that we check the track record of the asset management company.

Ratio of Expenditure: While our finances are being managed under the mutual fund scheme, there are some charges that are billed to us directly. There are charges for administration, management, as well as promotions and distributions, all of which are expenses incurred during the running and maintainence of the fund, and are included in this figure. The higher the overhead expenditure, the lower our net returns from the mutual fund scheme.

Now that you know what to look for when choosing a mutual fund category or scheme, you should be able to make a more informed decision on your investments. There are a lot of other factors that can influence this decision and it’s outcomes and we always suggest that you consult your financial advisor before making any investment decisions.

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What is the Alternative Fund scenario in India?

April 13, 2022

In order to understand the Alternative Fund scenario (AIF) in India, we first need a clear understanding of what Alternative Investment Funds are. An AIF is  any financial asset that does not fall under regular investments categories, like debts, equities etc. Any funds that are established in India, and are privately pooled investments that collect their funds from high profile investors (national or international), with the purpose of investing the money in accordance with certain guidelines or policies can be classified as an AIF. Any privately held equity, a hedge fund, and even real estate can be considered to be a form of alternative investment.

Since an investment in AIFs is generally manifold higher than an investment in a regular Mutual Fund, they are mostly invested in by High Net work Individual (HNIs). The Stock Exchange Board of India (SEBI) has categorised AIFs into three broad categories, and understanding them should give us a better understanding of the Alternative Funds scenario in the country presently.

AIF scenario in the country

Since its inception in 2012, AIFs in India have seen unprecedented growth and investments in them have steadily gained a lot of traction, with the number of investors increasing year on year. Furthermore, hedging strategies are allowed to be incorporated into Alternative Funds, unlike mutual funds, where there is no scope for implementing similar strategies.

As of 2017, AIFs were regarded as the second most active sector in India. The reason for this high spur of activity within the industry was because of the Indian Government’s allocation of Rs 20,000 Crores to the National Infrastructure Investment Fund. By September of 2020, AIFs managed to raise investments worth a whopping figure of nearly $27 Billion, with a 74.4% compund annual growth rate (CAGR) between the years 2014-20.

However, in India, AIFs are not allowed to invite public investors for subscribing to their securities. Instead, they are privately pooled and raise funds specifically using private investment vehicles only. The minimum corpus for an AIF stands at a high $2.7 million, and the same for an angel fund corpus is at $1.4 million.

In it’s current state, AIFs can be broadly categorised into three sections, which also showcase their market size.

Category I AIF

Category I AIFs are funds that operate with the strategy of investing in a startup or venture in an early stage. SMEs or social ventures, which the government considers to be desirable by the society, are a part of category I AIFs. 

Category I AIFs generally tend to have a positive spillover effect on the economy of the country, due to which SEBI, and the Indian Government, along with other regulators sometimes consider providing concessions and incentives to these AIFs. 

Under the regulatory framework, Category I AIFs may be sub-categorised into venture capital funds, infrastructure funds, social venture funds and so on.

Category II AIF

Alternative Investment Funds that have a motive of investing in multiple securities, that comprise both equity and debt, can be put under Category II AIFs. These funds cannot be put under Category I or Category III by SEBI and other regulators, and are not given any particular concession or incentives by the Government for investing in these funds. However, Category II AIFs are the largest component of the Indian AIF industry, and alone makes up for nearly 77% of the same. Close ended funds like private equity funds, debt funds and fund of funds can be considered to be Category II AIFs.

Category III AIF

This category of Alternative Investment Funds undertake complex strategies and diverse trading methods to get short term returns on their capital. These can be open ended as well as close ended funds, which have the option of making an investment in both listed and unlisted derivatives. Unlike conventional investments, they are less regulated and hence do not have the requirement of publishing their information on a regular basis. However, like Category II AIFs, the AIFs in Category III are also exempt from all forms of incentives and concessions from the government and other authorities. Hedge funds can be said to be an example of a category III AIF.

While AIFs raise funds from high profile private investors, there are taxation rules that apply to these funds. Category I and II AIFs are exempt from taxes, and the fund itself does not have to bear taxes based on its earnings. However, the investors, on the other hand have to pay taxes based on their respective tax slabs. Investors have to pay a tax ranging from 10% to 15% based on the holding period, provided there has been capital gained from the stocks.

The Category III AIFs fall under the highest tax slab at the fund level, with the rate standing at 42.7%. The investors are given their returns post the deduction of relevant taxes.

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The different types of Mutual Funds

April 12, 2022

You may have heard of the term ‘Mutual Funds’ frequently over the last few years, but do you know exactly what they are? 

Mutual Funds are investment platforms that pool money from different investors, and provide these investors with returns on the collected corpus over a period of time. This accumulated money pool is invested into the equity market by investment professionals, who are known as portfolio managers or fund managers. Fund managers invest your money into various forms of securities, like stocks, gold, bonds and other similar assets, which have the potential to provide satisfactory returns. These returns are then shared amongst the investors proportionate to their investment in the mutual fund. 

While the crux of mutual fund investments is market returns, they can be classified into various segments, based on their investment goals, and other forms like structure and asset classes.

Classification on the basis of structure

Close-Ended Funds: Close ended funds are ones which are available for purchase only during an initial offer period. For the purpose of providing liquidity, these schemes are often listed for trade on the stock exchange. Close ended mutual funds need to be sold via the stock market at the prevailing price of the shares.

Open-Ended Funds: Open ended funds are those which can be purchased throughout the year. Open ended funds allow you to keep investing as long as you want, without any limits being imposed on the investment amount. Because of the active management these funds are subjected to, open ended funds charge a higher fee when compared to passively managed funds. Since they are not bound to a particular maturity date, open ended funds are the perfect choice if you are looking for liquidity.

Interval Funds: Interval funds are a combination of both open ended and close ended funds. These can be purchased at different time periods during the tenure of the fund. During this time, if you are a shareholder and wish to sell the shares, you can offload them to a fund management company that offers to repurchase the units from you.

Classification on the basis of asset class

Equity Funds: These are funds which provide high returns, but also come with high risk. Equity funds invest in company shares and are linked to the stock market, which is why returns may fluctuate.

Money Market Funds: Money Market funds invest in liquid instruments like Treasury Bills (T-Bills). They are moderately safe and good for you if you are looking to gain immediate returns. The risks associated with these kinds of funds are credit risks, reinvestment risks and interest risks.

Debt Funds: As implied by the name, Debt funds invest in company debt instruments like debentures, and other fixed income assets. They are safe investment platforms and deliver fixed returns.

Balanced or Hybrid Funds: These funds combine both equities and debts, however, the proportion invested in each varies between funds. Both the risk and returns are balanced out in a similar fashion. Investments are done in a mix of different asset classes.

Classification on the basis of investment goals

Income Funds: These funds are primarily used to invest in instruments providing a fixed income. The main motive of income funds is to provide you with a regular stream of income. 

Growth Funds: Growth Funds primarily invest in the equity market with the aim of gaining revenue from capital appreciation. These are subject to market risks, and are beneficial if you are looking to make high returns on your investments.

Liquid Funds: These are very short term investments that provide you with high liquidity. While they are low risk investments, the returns from liquid funds are moderate, and good for you if you have short timelines.

Capital Protection Funds: Capital protection funds are invested in a split between equity markets and income instruments with a fixed return. The motive of making the split investment is to protect the principal amount invested by you. 

Tax-Saving Funds: With high risk and high returns, these funds primarily invest the capital in equity shares, which qualify for deductions under the Income Tax Act.

Pension Funds: These funds have the aim of providing you with regular returns on your retirement after a long investment period. While they are mostly hybrid funds, they have low but stable future returns.

Fixed Maturity Funds: These funds invest in the debt market instruments which have a similar maturity period as the fund. 

While it is definitely beneficial to be aware of the forms of mutual funds and align these with your financial goals, you should also know about the risks associated with each and consult your financial advisor before making any financial decisions.

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