Mutual Funds invest basically in three types of asset classes. These include:
Stocks:
Stocks represent ownership or equity in a company. This asset
class has historically outperformed all other asset classes over the long-term
but tends to be more volatile in the short-term.
Debt Instruments:
This represents debt papers of corporate and government agencies.
They provide income in the form of interest payments and principal if held till
maturity. There can be price volatility due to interest rate movements as well
as economic and political instability.
Money Market Instruments:
These are inter-bank Call Money, Commercial Paper, Treasury
Bills, Certificates of Deposit (CDs), Bill Rediscounting and short-term bonds.
They pay interest and are the least volatile of all the asset classes.
