Mutual Fund

These funds generate income through arbitrage opportunities emerging out of mis-pricing between the cash market and the derivatives market. Arbitrageurs buy equity and sell equal volume of futures so that their net position (in terms of risk) is zero. They remain unaffected by price movements in their arbitraged scrips. Any upward movement will increase profits on their equity holdings and losses on futures positions and vice versa.

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected by changes in the interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short-run and vice versa.

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial papers, inter-bank call money, etc. Returns on these schemes fluctuate much less as compared to other funds. These funds are appropriate for corporate as well as individual investors as a means to park their surplus funds for short periods.

These funds invest in both, stocks and bonds. Hybrid funds offer investors the opportunity to diversify their portfolio with a single investment vehicle. Based on the percentage allocation to stocks and bonds, these funds may be classified as equity or debt respectively. The ratio of stocks and bonds may remain fixed or vary over time.