What are Specialized Mutual Funds?

What are Specialized Mutual Funds?

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Mutual funds are investment tools to deposit money and expect good returns on that investment. A professional fund manager or an asset management company performs investment on your behalf and charge you commissions for their service. There are different categories in Mutual funds such as Asset Class, Structural Classification, Investment Goals, Risk Appetite, and Specialized Mutual Funds. Specialized funds are those Mutual funds that focus on particular industries that involve commodities, regions, or other segments of the market. They are also known as Speciality Fund.

Let’s discuss each type that comes under specialized mutual funds. 

  • Sector Funds 

Sector Funds are Equity funds that allow you to invest in stocks of companies across different market capitalizations and security classes of a particular sector. You can invest in various such as utilities, energy, infrastructure, etc. They are commonly known as sectoral funds.

  • Index Funds 

Index Fund allows you to invest in stocks of companies. They replicate a stock market index like the NSE Nifty, BSE Sensex, and so on. They are passively-managed funds where you can invest in the same securities as present in the underlying index proportionately without changes to the portfolio composition. 

  • Foreign Funds 

Foreign funds are also known as overseas or International funds that allow you to invest in foreign companies. You can get great diversification opportunities in your investment portfolio as the market is global. There is a higher risk to invest in Foreign funds, but there are higher returns as well. 

  • Funds of Funds 

Fund-of-funds are multi-manager investments, commonly known as FOF. They are pooled investment fund that allows you to invest in other types of funds. Simply, its portfolio holds various underlying portfolios of other funds. These holdings can directly replace any investing in bonds, stocks, etc. 

  • Exchange-traded Funds 

An exchange-traded fund (ETF) is a basket of securities. ETF is similar to a mutual fund as it is an investment tool to collect money from various investors. It is similar to stock because it is tradeable in the Stock Market. You can have a diversified portfolio where you can invest in various asset classes such as Stocks, Commodities, Currencies, Bonds, Options, or a combination of these.

  • Emerging market Funds

Emerging Market Funds are also known as equity funds or Exchange-traded funds (ETFs) that allow you to invest in stocks of the emerging markets in the world. India, Brazil, Russia, and China are the four largest emerging markets. Although there are higher risks, you can gain higher returns. You can spread your investment to more than a single stock or country.

  • Global Funds 

Global Mutual Funds allow you to invest in companies located all over the globe. Although you can invest in the international markets, Global Funds and International Funds are different. International Funds allow you to invest in all countries, excluding the country where you live. Global Funds allow you to invest in all countries globally where there is no exception.

  • Commodity-focused Stock Funds 

Investors who want good risk appetites and portfolio diversification can opt for this fund. You can take part in multiple and diverse trades. Returns are non-periodic and rely on the performance of the stock company or the commodity. Gold is the only commodity in India that offers a direct investment. 

  • Real Estate Funds

Real Estate Mutual Funds are commonly known as REMFs that allow you to invest in established real estate companies/trusts, not on projects. A large part of these REMFs invests in commercial & corporate properties, agricultural land, and residential complexes. REMFs allow you to direct or indirect investment in properties through Real Estate Investment Trusts (REITS).

  • Asset Allocation Funds

Asset allocation funds are balanced mutual funds where you can invest in a varied class of assets such as equity-based, debt-based, or even other asset classes like gold, other metals, and commodities. You can have control over volatility and gain better returns along with the advantages of portfolio diversification. 

  • Market Neutral Funds

A market-neutral fund allows you to make profits instead of a high or low market. You can diversify your portfolio. There is a high risk as the investment strategies depend on leverage, short-selling, and arbitrage for the expected outcomes.

  • Leveraged Funds 

Leveraged funds use financial leverage techniques to make maximum returns. They cover Option trading, Short selling, Buying assets on margin, etc. They are cost-effective investments. You can easily track the index. You can get your portfolio good exposure to generate sizeable gains irrespective of market volatility.

  • Leveraged inverse ETFs 

Leveraged inverse ETFs offer opposite exposure, a multiple (-2X or -3X) of the underlying index’s performance. There are different investment strategies like swaps, futures contracts, and other derivative instruments for desired outcomes. Investors can make higher returns in a very short time owing to their compound effect. 

  • Gift Funds 

Children’s Gift Funds allow you to gain financial advantages for your children for different needs like meeting marriage expenses and future educational needs. You can gain long-term capital appreciation. They come under Hybrid Funds or Balanced Mutual Funds, where you can invest in a blend of Debt and Equity Instruments.

The Bottom Line 

Mutual funds that focus on the financial instruments of a specific industry, sector, or region are called Specialized Mutual Funds or Specialty funds. There are various types of mutual funds under the category of Specialization. Hope this article helps you to understand each of them. 

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