Types of Mutual Funds in India

Here we explain the different types of Mutual Funds. Check the list with explanation.

Types of Mutual Funds in India Based on Asset Class

Equity Funds 

These are also called stock funds as they mainly involve investment in the stock markets. These types of funds bring together investors from different portfolios and enable them to put in the money brought about from various resources.

The ups and downs of these shares bought from the market in the form of funds are directly associated with losses and gains incurred in the stock market. The main attraction of investors’ preference for equity funds is the tremendous returns which can be achieved during the fixed period which also comes with a definitive risk associated with these types of funds. 

Debt Funds

Debt funds include investment mainly in bonds and bills such as securities and treasuries which guarantee more or less a fixed amount of returns on maturity. Debt funds include a diverse portfolio such as short and long term bonds and fixed monthly income guaranteed bonds.

These types of funds are generally preferred by those individuals who are looking for a fixed income and also do not wish to take risks associated with their investment.  Other types of debt funds are gilt funds and liquid funds.

Money Market Funds

Also known as the capital market, these types of funds involve pooling together of money in the cash market. These types of funds are managed by a designated investor and the appropriate dividend is credited into the investor’s account promptly. Selecting a short term plan which means less than a year, carry a considerably lower risk of investment.

Hybrid Funds

Otherwise known as balanced funds, hybrid funds suggest an optional combination of both bonds and stocks. Hybrid funds are the intermediary types of funds between equity and debt.

The selection of bonds or stocks range can be either constant or changeable. These types of funds are preferred by those individuals who are willing to take risks in terms of returns as they may sometimes incur loss also.

Types of Mutual Funds in India Based on Structure

Open-ended Funds

The characteristic feature of these types of funds is that they are not bound by any specific conditions such as the duration of investment or the amount that can be invested. Open-ended funds give flexibility to the investors as they are free to either continue the funds or withdraw the amount as per their choice by settling the net asset value any time. These types of funds also have the liberty to deny including more investors if they are not willing to.

Closed-ended Funds 

The invested amount is pre-decided in cases of investment in closed-ended funds which implies that the designated firm cannot sell more than the number of units that have been agreed upon previously.

Closed-ended funds may also include laying down of some conditions such as new fund offers where the units cannot be purchased after a certain fixed period. 

Interval Funds

A combination of some of the features of both open-ended and closed-ended funds are seen in interval funds. These types of funds can be either bought or sold only within the stipulated period which is decided by the firm which manages these funds.

These types of funds are ideal for those individuals who wish to save a significant amount of money with an intent to withdraw it within a year. 

Types of Mutual Funds in India Based on Investment Goals

Growth Funds

These categories of funds usually set aside a large number of units which are generally selected by the individuals who want to put in their money in the market which may be riskier in terms of investment but also has high chances of obtaining high returns. 

Income Funds

Income funds are mostly a mixed portfolio of investments which are generally a combination of bonds, deposits and securities. These types of funds are usually under the watchful eye of a seasoned fund manager who can float the shares without incurring losses even though there exist rate fluctuations.

These categories of funds are mainly ideal for those investors who do not want to take risks and are looking for investments ranging from a period of 2 to 3 years.

Liquid Funds

These funds involve investment in the money market lasting for 91 days and the limit of capital that can be invested in these types of funds is 10 lakh rupees and the returns are calculated based on the net asset value which is computed for 365 days. 

Tax Saving Funds 

Also known as the equity-linked saving scheme, these types of funds are the most preferred method of investment by individuals especially the salaried class as they offer maximum returns along with a reduction in the taxes to be paid. These types of funds are also associated with the least duration of lock-in which is three years and the expected amount of profit is in the range of 14 to 16 %. 

Aggressive Growth Funds

These types of funds even though risky also have the capacity of getting high monetary returns which usually depends on the ups and downs in the market. 

Capital Protection Funds

Even though the returns are a little on the lower end, capital protection funds serve the basic purpose of retaining the principal amount of money invested. In these types of funds, the chances of getting lower returns are extremely negligible if the capital is invested for at least a period of three years. 

Fixed Maturity Funds

Fixed maturity funds usually involve putting the capital amount in various bonds, securities or other types of investments in the market which can be done within a period ranging from a duration of one month to five years similar to those of fixed deposits, and they also reduce the taxable income as they are usually invested at the end of the financial year. 

Pension Funds 

A pension fund consists of securing a part of the salary over a large amount of time which can be availed at a later date especially after retirement to reinforce a sense of monetary security for the family in times of need as savings alone are not enough in the long term. 

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