Although these products are sometimes grouped together as “equity investments”, they are not all the same. Mutual funds can invest in different asset classes; shares represent ownership in a company; futures and options are derivatives; and REITs and InvITs are trust units that provide exposure to real estate or infrastructure. Their potential returns, risk of loss and liquidity differ.
1. Mutual funds
A mutual fund pools money from investors and invests it in shares, debt securities, gold or other assets according to the scheme's objective and rules. Investors buy units, whose value is generally shown as the net asset value (NAV). A mutual fund is not a deposit; principal and returns are generally not guaranteed.
Debt mutual funds
These schemes invest in instruments such as government and corporate debt securities and money-market instruments. They may generally be less volatile than equity funds, but still face credit risk, interest-rate risk and liquidity risk. “Debt” or “fixed income” does not mean returns are guaranteed.
Equity mutual funds
These invest primarily in company shares. They offer participation in market growth, but NAV can fall when share prices decline. Categories such as large-cap, mid-cap, small-cap, sectoral and index funds have different investment exposures and risks. Read the scheme's investment objective, benchmark, expense ratio, exit load and Riskometer.
Balanced or hybrid mutual funds
These hold equity and debt instruments in the same scheme. The allocation may be fixed or change with market conditions. “Balanced” does not guarantee capital protection or a particular level of risk; check the actual asset allocation and rebalancing rules.
Gold mutual funds
In India, such schemes may be available as funds of funds that invest in gold ETFs. Some gold-linked investments can also be bought directly through a demat account. This does not mean receiving physical gold as you would when buying jewellery. Gold prices, currency movements, expenses, tracking differences and market prices can affect value; interest income is not guaranteed.
Use the SIP calculator and SWP calculator to explore regular investments and withdrawals. Calculator estimates do not guarantee future returns.
2. Equity and related market instruments
Share trading account
A trading account with a registered broker lets you place orders to buy and sell shares and other permitted securities. Understand transaction charges, taxes, order types, margin and settlement procedures with the broker.
Dematerialised (demat) account
A demat account holds shares and other eligible securities electronically rather than as paper certificates. In India, it is opened through a depository participant (DP) associated with a depository such as NSDL or CDSL. The demat account holds securities, the trading account places market orders, and the bank account handles money transfers; each has a different role.
Shares
Buying a share gives you a small ownership interest in a company. Its price may rise or fall because of company performance, market conditions, interest rates and other factors. Dividends are not guaranteed, and you can lose your entire investment. Avoid excessive concentration in one company and examine its disclosures, finances and your investment objective.
Futures
A futures contract is a derivative that creates an obligation for both parties to buy or sell a specified underlying asset or index at an agreed price and expiry, subject to the contract's settlement terms. Taking a large position using margin can amplify gains and losses; daily mark-to-market, additional margin and expiry settlement rules may apply. This is not equivalent to long-term share investing.
Options
A call or put option gives its buyer the right, but not the obligation, to buy or sell at a specified strike price under the contract's terms. The buyer pays a premium for that right. The option seller or writer takes on an obligation and may face substantial losses. Do not trade without understanding expiry, strike, lot size, premium decay, margin and settlement rules.
Futures and options are complex, high-risk instruments. A low initial margin does not mean low risk; inexperienced investors can suffer significant losses if they trade without understanding them.
3. Real estate investment trusts (REITs)
A real estate investment trust (REIT) is a trust structure that manages real estate investments such as income-producing commercial properties. Publicly offered and listed REIT units can be bought or sold on an exchange; a unit is not the same as direct ownership of a building.
Rental income, vacancy, lease renewals, debt, interest rates, property valuations and the unit's market price can affect returns. Distributions and unit prices are not guaranteed, and expenses and tax rules apply.
4. Infrastructure investment trusts (InvITs)
An infrastructure investment trust (InvIT) pools investment in infrastructure assets, such as roads, power and transmission networks, or in companies that hold them. Some InvIT units are listed on an exchange. Cash distributions depend on the trust's cash flows and rules.
Understand risks such as debt, traffic or usage levels, concession agreements, regulatory decisions, maintenance costs, interest rates and revenue forecasts not being met. As with a REIT, buying an InvIT unit is not direct ownership of the entire asset; prices and distributions are not guaranteed. Read our InvIT guide for more detail.
Before investing
- Does the investment fit your goal, time horizon and capacity to absorb losses?
- Have you read the Scheme Information Document, Key Information Memorandum, risk disclosures, charges and tax rules where applicable?
- For futures or options, do you understand margin, expiry, settlement and worst-case losses?
- For REITs or InvITs, have you examined the underlying assets, debt, income sources and market liquidity?
- Do not decide based only on the name or past returns. If needed, consult a SEBI-registered investment adviser.
This article is for education and awareness only; it is not personal investment advice. Market investments can result in loss of capital.