Types of Mutual funds

Types of Mutual funds-All you need to know

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Mutual funds are getting a lot of popularity in the recent past as an effective investment channel. nowadays people are very aware of the importance of having a strong investment. and mutual funds are one of the best options to grow your investment. however, Investing money becomes a necessity these days because depending on a single source of income is not that safe in the future. there are different types of Mutual funds. in this post, we will discuss Types of Mutual funds and their characteristics and applications.

Also read: Benefits of mutual fund investing

Types of Mutual funds

The mutual funds in India are categorized based on some criteria as follows.

  • structure
  • asset class
  • investment objective
  • specialty
  • risk

The most popular mutual fund types in India are,

  • Equity funds
  • Debt funds
  • Money market funds
  • Index funds
  • Balanced funds
  • Income funds
  • Fund of funds
  • Specialty funds

There are several types of mutual funds offer by asset management companies in India. We have categorized the funds based on the criteria mentioned above.

Types of Mutual Funds based on structure

Open-Ended Funds

As the name implies these funds are OPEN always. In this fund, units are open for purchase or redemption throughout the year. All the purchases and redemption of these fund units are done at prevailing NAVs. Open-end funds will allow its investors to keep the investment as long as they want. also, there are no limits is there on how much can invest in this fund. also, This is an ideal investment tool for those who want investment along with liquidity. because these funds are not restrict to any specific Investment period. This means that investors can redeem their units (withdrawing funds) at any time they wish. it gives them the liquidity they need. because of this reason, the majority of people choose open-ended funds for investment and liquidity.

Close-Ended Funds

In close-End Funds, units can be purchase only during the initial offer period (NFO-New Fund Offer). and these units can be redeem only at the maturity date. in this case, to increase the liquidity, these funds/schemes are often available on the stock exchange for trading. here, once you buy units/shares, you cannot sell them back to the mutual fund, but, you can sell them through the stock market as it is available on the market.

Interval Funds

Interval Funds are the type of funds that have the features of both open-end and close-end funds. that means these funds are open for the repurchase of shares/units at different intervals during the fund period. also, The Asset management company allows repurchasing units from existing unit/fund holders during these intervals. If the fundholder wants to offload shares in favor of the fund, they can do that too.

Types of Mutual Funds based on asset classes

Equity Funds

As the name implies these are funds that invest in equity shares of the companies.a Equity funds are considered as a high-risk investment option since they are directly dependent on the performance of the company shares on the stock market. but also tend to provide high returns. The risk-taker investors can go for Equity funds.

Debt Funds

Debt Funds are the type of funds that invest in debt instruments like debentures, government bonds, and other fixed-income assets. unlike equity funds, these funds are not risky, also it provides fixed returns only. the investors who don’t want to take high risks, also expecting a decent fixed return, debt funds are the best choice

Money Market Funds

Money Market Funds are funds that invest in liquid instruments like Treasury Bills (T-Bill), Commerical Papers (CP), etc. it is considered safe investments for those looking for risk-free and moderate returns funds.

Balanced or Hybrid Funds

Balanced or Hybrid Funds are funds that invest in a mixture of asset classes. In hybrid funds, both equity and debt assets are added in a ratio. if it is an aggressive hybrid fund. 60-80 % will be equity asset 20-40% will be debt asset. if it is a conservative hybrid fund, vice-versa. in short, in a balanced/hybrid fund both equity and debt assets will be there. according to risk appetite, the investor can choose the types of hybrid funds as we mentioned above.

Types of Mutual Funds based on investment objectives

Growth funds

Under Growth funds, the Investor’s money is invested primarily in equity shares. and expecting capital appreciation. these are risky funds because the returns are depending on the up and downs of the stock market. it is a risky fund, also it is high returns providing fund. so growth funds are apt for risk-taking investors.

Income funds

Under Income funds, money is invested primarily in fixed-income assets like bonds, debentures, etc. the main purpose of such funds is to provide capital protection and regular income to the investors.

Liquid funds

Under Liquid funds, the money is investing primarily in short-term assets like Treasury Bills (T-Bills), Commercial Papers (CP), etc. so,Liquid funds are considered as low-risk investment options with moderate returns and Liquid funds are ideal for investors with short-term investment time horizons.

Tax-Saving Funds (ELSS-Equity Linked Saving Schemes)

ELLS funds invest primarily in equity shares of the companies. these investments are tax-free as per the income tax laws in India. also ELSS is considering as one of the high-risk investment options, but if the stock market supports it well, ELSS gives good returns too. so this option is good for risk-taking investors only.

Capital Protection Funds

In Capital Protection Funds, investment is making in both fixed income instruments and equity markets. so the capital will be safe. if the stock market gives negative returns, the fixed income assets balance the fund.

Fixed Maturity Funds

Fixed maturity funds are the funds in which the assets are invested in both debt and money market Instruments. the maturity date is either the same as that of the fund or earlier than it.

Pension Funds

Pension funds are long-term goal funds. the objective of the pension fund is to provide regular returns after the retirement. The investments in a pension fund are split between equities and debt markets. The returns from these funds can be withdraw as pension or lump sum.

Also read: Glossary of Mutual Fund Terms and its meanings

Types of Mutual Funds based on specialty

Sector Funds

As the name Implies these funds invest in a particular sector of the market. for example, Banking sector funds invest only in those instruments or companies that relate to the Banking sector. also, Returns are purely based on the performance of the banking sector. Depending on the sector chosen, risk varies.

Index Funds

Index Funds are funds that invest in instruments that represent a particular index of an exchange. so the return will be based on the movement of the index. example BSE SENSEX

Fund of funds

As the name implies these are funds that invest in another mutual fund. the returns are depending on the performance of the target fund. Fund of funds is also names as multi-manager funds. These investments are relatively safe.

Emerging market funds

Emerging market funds are funds that investments in developing countries that show a good growth rate and have a promising future. these funds are risky since the fund performance depends on the political and economic situations in the country.

International funds

These funds offer investments in different multi-national companies. These companies will be from emerging economies. but no investment is making in the companies from investors own country.

Global Funds

In Global Funds, investments are in companies in any part of the world. Global Funds are different from international funds because, in global funds, investments can be make even in the investor’s own country.

Real estate funds

As the name implies, Real estate funds are the funds that invest in real estate sector companies. so These funds can invest in companies like realtors, builders, property management companies, etc.

Commodity focused stock funds

In these funds, doing investment in companies that are working in the commodities market, such as mining and producer companies of commodities. so These funds perform the same way the commodity.

Market neutral funds

As the name implies, these funds don’t invest in the markets directly. so They invest in treasury bills (T bills), ETFs, and securities and try to target fixed and steady growth. so the fluctuation of the market will not affect here.

Inverse/leveraged funds

These are funds that operate inverse to the traditional mutual funds. these funds make money when the markets go down and when markets go up these funds go into loss. for balancing the portfolio you can choose these funds as a backup.

Asset allocation funds

The asset allocation funds are of two variants, one is the target date fund, and the other is target allocation funds. In these funds, the portfolio managers adjusst the allocated assets to achieve results. Asset allocation funds split the investment in various instruments like bonds and equity.

Gilt Funds

Gilt Funds are mutual funds that make investments in government securities for the long term time period. this is one of the best investment options for investors who have a low-risk appetite. since the investment is in government securities, it is completely risk-free.

Exchange traded funds (ETF)

Exchange-traded funds (ETF) are funds that are a mix of both open and close-end mutual funds. also, it is trading in the stock markets. these funds are passively managing funds and can offer better liquidity. since it is passively managing, ETFs have lower service charges.

Also read: Direct Mutual Funds: Features & Benefits

Types of Mutual Funds based on risk

Low risk

Low-risk funds are for Investors who is having less risk appetite. as a part of low risk, the returns also will be less. the investment of such mutual funds will be in debt markets. these funds are not affect by the market fluctuations. so no need to worry about sudden ups and downs.

Medium risk

Medium risk funds are apt for investors who can take minimal risks. also, these funds will give better returns than low-risk funds. These funds are the investment idea to build wealth over a longer period of time frame.

High risk

As the name implies, high-risk funds are for high risk-taking investors. equity funds are examples of high-risk mutual funds. in such funds, returns will be higher.

Final Thoughts

Making an investment is a necessity these days. people are showing much more interest in mutual funds in the current era. but many of us don’t know the types of mutual funds and in which fund we have to invest. we can make an effective investment only if we use an effective investment gaol. for making an effective investment goal, we have to know about the types of mutual funds available in India. in this post, we discussed various types of mutual funds and their applications. so, I hope this post will help you to understand the types of mutual funds available in India.

Happy Investing


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