Definition: The Special Funds are those kinds of mutual funds that can neither be categorized as equity funds nor as the debt funds. These funds are unique and work well for those investors who have specific financial objectives.
The following are the different types of Special Funds:
- Index Funds: These funds track and replicate the performance of a particular index such as S&P, BSE, and NSE. The portfolio of such scheme holds only those stocks that represent the index and hence the value of these funds goes up or down as the index goes up or down. The index funds have relatively lower costs as compared to the other mutual funds because the investor is not required to do much research and make complex investment decisions. The investor’s returns depend largely on the market and hence he will receive whatever the market will deliver.
- International Funds: The International funds, also called as foreign funds are the type of mutual funds that invests in the stocks of companies located anywhere outside the investor’s country. Simply, the international funds mean a mutual fund located in India to raise money in India for investing globally.The portfolio of such scheme is highly diversified as it offers opportunities to the investor to invest in different companies in different sectors across the world.
- Sector Funds: A type of mutual fund that invests in a particular sector or industry of the economy, such as real estate funds, bank funds, power and energy funds, etc. The portfolio of these funds is less diversified as it holds the stock of a particular sector and hence is riskier than the other kinds of mutual funds. The performance of these funds depends on the performance of the sector in which they are investing. Thus, the risk level of sector funds depends on a particular sector.
- Money Market Funds: The money market funds, also called as the liquid funds invest in the highly liquid money market instruments that offer an opportunity for the investor to preserve his capital and withdraw it anytime he wants. These funds work well for those investors who have surplus cash and wish to invest for a short period, as short as a day. Some of the commonly used short-term money market instruments are commercial papers, certificate of deposits, treasury bills, etc.
- Fund of Funds: The fund of funds means holding the portfolio of some other investment scheme rather than a direct investment in the stocks, debentures, and other money market instruments.
- Gold Funds: The gold funds or exchange traded funds invests primarily in the stock of the companies that are engaged in the gold production and mining. These funds are listed on the stock exchange and offer an opportunity for the investor to participate in the bullion market (a forum for trading in gold and silver) without actually taking the physical delivery of the gold. The investors invest in the gold funds to hedge against the volatile equity markets.
Thus, special funds provide unique advantages to the investor and, therefore, are frequently used as an alternative to other mutual funds.