Profectus

An equity fund invests it money primarily in equity instruments i.e. share market. Equity refers to ownership interest in a company. As a owner, the rate of return that you get completely depends on the stock market performance of the company. Thus your returns are variable and risky. However, over a longer term these funds also provide much better returns that debt funds. Debt funds invest in the bond market. Bond market are financial instruments that provide (on most occasions) a fixed interest to the investor and a fixed principal on maturity (pretty much like any loan). Unless a company goes bankrupt, the investments are fairly safe. Debt funds also invest a significant part of their funds in government bonds which are almost free of any default risk. Thus debt funds are less riskier than equity funds but in turn also provides lesser return (remember: high risk follows high return and low return follows low risk) A balanced fund invest part of their money in equity and part of their investments in Debt. Thus, in terms of return and risk, they fall somewhere in between.