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Investor Education

What is Mutual fund?

Mutual fund is an investment option which pool investor’s money and invests in stock markets for
generating better returns by diversifying the risks. The collective holding of invested amount in
mutual funds is called as portfolio. It’s not an alternate to stocks, but its collectively investing
minimizing the risk involved in stock markets.

Why invest in mutual funds ?

To diversify risks it is recommended to invest in mutual funds rather than stocks where your
investment is linked to one or two specific stocks. In mutual funds, the fund manager purchases
many stocks from of the same sector, as well as diversifies the investment in different sector to
broaden risks. So even if one or two stocks fail, it does not affect the entire invested funds as the
risk is minimized.

What is Equity fund ?

Equity fund is a fund designed by the fund manager who invests more than 70% in stocks or equity
related instruments which are linked in various sectors. The primary objective focus of an equity
mutual fund is to make investment in equities or stocks of companies listed on the stock exchanges.
This helps beating inflation and increase returns from the market.
The universe of equity mutual funds is further divided based on the investment objective and risk
appetite of the investor.

What is debt fund ?

Debt funds invests in Commercial Papers (CP), Certificate of Deposit (CD), Corporate Bonds, T-Bills,
government securities and other money market instruments in order to generate stable returns as
the interest rates in the above investments vehicle is fixed. Such investments have a fixed maturity
date and they are considered to be safe in volatile markets where stocks show a very high alpha
ranges. This investments vehicle is best for people who do not wish to take risk or senior citizens
who are not in a position to bear the up and downs of the equity components.

Equity funds can be further diversified into-

Large cap funds-

They invest their money in the top 100 companies listed on the stock exchange. The investment is
made majorly in blue-chip companies. It means that large cap funds carry low risk as the Companies
they invest are fundamentally very strong and backbone of economy, thus making these
investments perfect for conservative investors. The large cap funds investment is at least 80%
investment in Large cap stocks. (Source-

Mid cap funds

These funds invest in companies ranking between 101st and 250th in terms of market capitalization.
Typically, the market capitalization of midcap companies is between ₹5,000 to ₹20,000 crore.
A minimum investment of 65% must be done in mid cap companies and the risk associated with it is
high. (Source-

Small cap funds

The fund manager invests in small companies where market capitalization is on lower side.
There are more than 65% of investments in such companies in order to generate maximum returns
since the risk associated with such companies is very high. The fund manager tries to hedge the
funds with the investing the balance amount in other investment vehicles were returns are
consistent. (Source-

Multi cap funds

Multi cap funds is the bouquet which contains the flavors of the all the 3 funds viz. Large cap, small
cap, mid cap in order to generate best of returns from such assets class. Equity exposure in such
funds is more than 65% and more than 15% into large cap funds and other investments into mid cap
and small cap funds.

Multiassest Fund

Multi-asset fund is nothing but multi-asset class .In Multi-asset classes there is a combination of
asset classes such as cash, bond, and equity. And these are used as an investment.

A multi-asset class, also known as a multiple-asset class or multi-asset fund, is a combination of
asset classes (such as cash, equity, index tracking funds or bonds) used as an investment. A multi-
asset class investment contains more than one asset class, thus creating a group or portfolio of
assets. The weights and types of classes vary according to the individual investor. The diversity
allows portfolio managers to potentially balance risk with reward and deliver steady, long-term
returns for investors, particularly in volatile markets. (Source-

Debts funds are further categorized as-

Bond fund-

As the name suggests, bond fund is an investment vehicle which invests in government securities,
debentures and corporate fixed income products where rate of returns is relatively secure and
stable. They also have an exposure to mortgage back securities, Bond exchange traded funds in
order to generate stable and monthly returns for such assets class.

Such class of investors has relatively secure investments as these instruments though have lower
returns but defiantly generate better income than traditional investments like fix deposits or gold

Gilt funds

Gilt funds are investments which have a primary exposure to securities issued by Central and State
government of India. Such investments are used in when the government needs money for a specific
project and issues bond for fixed percentage of income to the public. In such cases, the returns are
fixed however, depends on the tenure of the bond. Such bonds have a fixed coupon rates. In Guilt
fund the fund manager invests minimum of 80% in in G-sec across maturity.

The Reserve Bank of India (RBI) issues government securities on behalf of the government. Gilt funds
do not invest in corporate securities, lowering the fund’s risk. Gilt funds are an excellent investment
option to earn high returns while taking on low risk.

Money market fund-

Money market fund invests in the money market where the instruments have maturity of maximum
1 year. The entire corpus is invested in the money market and liquidity is made available to investor
to exit anytime from the fund. The fund may earn or loose on differences in yield curve.

Fixed Maturity Plans

Fixed Maturity Plans (referred as FMPs) are close ended funds which eliminate the risks of interest
rates and lock in yield, as the fund manager invests in the securities which have a fixed maturity.
These funds have the potential to earn better returns than liquid funds/ money market funds as the
investments are locked in. The investor cannot withdraw the funds as these funds have a fixed
maturity date and are closed ended funds.

Corporate Fixed deposits –

A corporate FD or a corporate fixed deposit is a type of deposit that is similar to that offered by

Companies and Non-Banking Financial Institutions (NBFCs) collect deposits from individuals for a
fixed term with a fixed interest rate. This type of deposit is called a corporate fixed deposit
(corporate FD).

They assure guaranteed returns and flexibility in deciding the tenure, just like bank FDs. They act as a
savings product for individuals. 

Further, issuers of corporate FDs are given credit ratings by agencies like CRISIL, CARE, ICRA, etc.,
which shows the riskiness of the deposit.

Capital Protection oriented funds-

These funds are too close ended funds which create a portfolio of debt instruments and equity
derivatives. The portfolio is maintained in order to provide security of the capital amount invested
by the investor and the investments are made in instruments which are rated by a credit rating
agency on its ability to do so. These ratings are reviewed every quarter. A portion of the amount
brought in by the investors is invested in debt instruments that are expected to mature to the par value of the capital invested by investors into the fund. The capital is thus protected. (Source


With PG Financials, investor shall be guided at every stage of his investments considering the
horizon, risks involved & the returns expected by the investor before placing the money in any of the
mutual fund category. The investor is explained about the funds objective and expected yield from
the funds