When the markets fell due to the subprime crisis lot of people saw most of their spectacular gains made in the last 1 or 2 years wiped out within months and infact they were staring at losses. Such was the shock and panic that investors started to give markets a complete miss altogether. People started parking their hard earned money in conventional products like bank fixed deposits and other Government sponsored schemes like Public Provident Fund (PPF), National Savings Certificates (NSC) and various Post Office Schemes etc.

Mutual Funds and Insurance companies started losing business as people became risk averse. People started shying away from the various equity schemes of mutual funds and unit linked insurance plans (ULIPs) of insurance companies. So these companies had to rework their business strategies and come out with innovative products so that they could get their customers back which were lost in the market crash. Some of the mutual funds and insurance companies started pushing their existing capital protection products aggressively. Companies that did not have capital protection products came out with these new products. Some insurance companies also came out with ‘Guaranteed Return Products’.

There are different types of mutual funds available in the market. Based on the style of investing the 3 well known types of mutual funds are:

1. Equity Mutual Funds: These mutual funds invest a major portion of their corpus in equity shares and equity related instruments. The aim of this type of mutual fund is to generate long term capital appreciation for the investor. This type of mutual fund is suited to those investors who are looking for high returns and have a high appetite for risk.

2. Debt Mutual Funds: These mutual funds invest a major portion of their corpus in debt instruments like Government Bonds and Securities, Corporate Bonds, Fixed Deposits, Money Market Instruments etc. The aim of this type of mutual fund is to generate regular income for the investor. This type of mutual fund is suited for those investors who are looking to generate regular income for themselves without taking much risk.

3. Balanced Mutual Funds: These mutual funds invest a major portion of their corpus in a mix of equities and debt instruments. The distribution may be in the ratio of Equity 70 and Debt 30 or 50:50 or any other ratio as specified by the mutual fund. The equity component aims at generating long term appreciation and the debt component aims at providing stability and generating regular income.

A number of people think that the unit price of a mutual fund matters when they purchase; i.e. that a cheaper unit price is better. Why? They say that they will get more units for the same money, and isn't that better? Deepak Shenoy shatters this myth in his blog.