Mutual funds are a readymade investment vehicle for individuals with no prior knowledge about investing. They can start investing with a very small amount, say, Rs 500. 

Two, investors can leave the job of investing the money and monitoring the investments regularly to a professional Mutual funds are a readymade investment vehicle for individuals with no prior knowledge about investing for a small fee. Three, you will get a diversified portfolio even with a small investment. Most importantly, it is very convenient to buy and sell a mutual fund.

Various types of Mutual Funds exist to cater to different needs of different people. Largely, they are of three types.

1. Equity or Growth Funds

These invest predominantly in equities i.e. shares of companies
The primary objective is wealth creation or capital appreciation.
They have the potential to generate higher return and are best for long term investments.
Examples would be
“Large Cap” funds which invest predominantly in companies that run large established business
“Mid Cap” funds which invest in mid-sized companies.
“Small Cap” funds that invest in small sized companies
“Multi Cap” funds that invest in a mix of large, mid and small sized companies.
“Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies
“Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment
Tax-Saving Funds

2.Income or Bond or Fixed Income Funds

These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.
These are relatively safer investments and are suitable for both Capital Protection and Income Generation.
Examples would be Liquid, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

3. Hybrid Funds

These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.
Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.

Systematic Investment Plan (SIP) :

“Little drops of water make the mighty ocean”

Systematic Investment Plan (SIP) is nothing but small amount of money invested on a pre-set date every month into specific mutual fund/funds. One of the best ways of entering equity market is through Systematic Investment Plans (SIPs) in equity mutual funds, as it brings in an investment discipline for the investor. SIPs help to achieve financial goals by investing small sums of money on a monthly basis that eventually leads to accumulating the required corpus for reaching the goal.

For some investors who are afraid of long term commitments like PPF or Insurance plan, SIPs are the answer. They are flexible:

1.SIPs are done in open-ended funds where the investors can invest and take out the money anytime
2.There is no fixed tenor for running SIP. Once the SIP tenor is fixed, it can stopped in between or could be continued even after the tenor by placing the request with respective mutual fund company
3.Full and partial withdrawal is possible during or after the SIP tenorThe SIP amount can be increased or decreased
4.The SIP amount can be increased or decreased

Just because SIPs are flexible doesn’t mean that the investment horizon could be shorter. Ideally, to reap the benefits of SIPs, the investment horizon should be for a longer term. Longer the investment horizon, better the wealth accumulation.