August 23 , 2012
Different mutual funds invest pooled money of investors in various assets and in varying proportion depending on the funds investment objective. Every mutual fund has an investment objective which can be thought of as the motto of the fund that gives a gist of what the fund intends to do with your money.
A funds investment objective is typically stated in one or two lines and it necessarily conveys information about 1) the aim ie., whether it aims at income generation or capital appreciation, 2) time horizon in which this is expected to be achieved ie., in the long term or short term or in 60 days and so on, and at times 3) nature of instruments that will be used to achieve the aim.
As an investor you must always look out for funds whose investment objective matches yours, in terms of goal and time frame. In general, if your goal is to grow your funds to create a desired corpus for some future use and you can stay invested for at least 5 years, then equity funds are the place to go. If instead your goal is to generate regular income for use in the near future, you must choose from debt funds. Liquid funds serve the purpose of parking money. These provide highest safety among all categories of funds but comparatively returns are minimal.