What is asset class?
In general sense, asset is something that gives you a return. For example, in financial sense, it can be house that you own, academically it can be a skill set that sets you apart from your peers at the office.
In the same in mutual funds, you give your money to the fund managers to buy assets that given positive financial returns.
So in mutual fund scenario, a asset can an equity (stocks), low-risk bonds or any other financial equivalent.
- Equity Funds:
These are high risk and high return mutual fund. These types of funds usually invest in stock and sharing that are trading in stock exchange. They are high risk in sense, their profits are subject to the ups and downs of the stock market. The returns might be fluctuating but usually they give you higher returns if you have appetite for risks and want to gain high profits. It is important to keep in mind that these funds might go in both ways either up or down depending on the market.
- Debit Funds:
These are low risk funds. They pool in the money from the investors to invest in debt structures like government bonds that are not usually given to the individuals. The working is similar to fixed deposits in terms of risk management, but since these will invest in large number of debt schemes, the interest gained is usually higher that of fixed deposits.
- Money Market Funds:
These are high liquidity funds that are best suitable for small investors. These funds usually contain assets such as treasury bills, banking acceptances and certificates of deposits.
They are best suited for these scenarios:
- When the investor is not particularly interested to make an investment and would like to park their money for sometime without losing their returns.
- An investor wants to move his large number of assets from one company to another but is waiting for the right time to invest, the existing company will issue market mutual funds to park his money.
- Balanced Or Hybrid Funds:
These type of mutual funds are mixture of different asset classes. While some individuals prefer a high risk profile and some low risk options, this type of mutual fund will contain a mix of equity and debt mutual funds in various ratios depending on the risk appetite of the investor.