Mutual funds provide the most comprehensive, flexible, easy, and lucrative ways to tend to your various financial needs such as capital appreciation, wealth protection, etc. Different types of mutual funds cater to varying needs of investors. This article aims to act as a mutual fund investment guide and throw light on different types of mutual funds.
Funds based on maturity period:
Basis the maturity period of a mutual fund, mutual funds are divided into two types:
- Open ended-mutual fund – These funds permit investors to invest or redeem mutual fund units basis the NAV of mutual funds on a continuous basis. In essence, open-ended funds offer flexibility and liquidity to investors.
- Close-ended mutual fund – These funds are accompanied with a fixed maturity date and investors can subscribe to these funds only during the initial launch of the fund.
Funds based on investment objective:
Basis the investment objective of the fund, mutual funds are broadly divided into three types – equity funds, debt funds, and hybrid funds.
Equity funds
Equity funds are a type of mutual funds that primarily invest in the equity markets. These funds are mandated to invest at least 65% of their funds in equity and equity-related securities. Equity funds have the potential to generate significant returns as their primary objective is capital appreciation. As these investments are termed as high-risk investments, they are ideal for investors with a high-risk profile. Equity funds are further divided into the following types:
- Sector funds
- Small-cap equity funds
- Mid-cap equity funds
- Large-cap equity funds
- Large and mid-cap equity funds
- Mid and small-cap equity funds
- Multi-cap equity funds
- Thematic equity funds
- Tax-saving funds
- Index funds
Debt mutual funds or income funds
Debt funds invest at least 65% of their assets in fixed income securities such as government securities (g-secs), bonds, money market instruments, corporate debentures, commercial papers, treasury bills (T-bills), certificate of deposits (CD), etc. These funds are usually less volatile than equity funds as they generate fixed income for investors. These funds are commonly referred to as income funds or bond funds or fixed-income funds. As per SEBI’s (Securities and Exchange Board of India) guidelines, debt funds are divided into following types:
- Overnight fund
- Ultra short duration
- Medium to long duration
- Long duration fund
- Money market fund
- Corporate bond fund
- Gilt fund
- Floater fund
- Credit risk fund
- Dynamic bond fund
- Liquid fund
- Low duration
- Medium duration fund
- Short duration fund
- Banking and PSU fund
- Gilt Fund with 10-year Constant Duration
Hybrid funds
Hybrid mutual funds invest in more than one type of asset class. Usually, it’s a combination of debt and equity asset classes. Also known as balanced funds, these funds aim to achieve diversify the investment portfolio and avoid concentration risk. Hybrid funds are further divided into following types:
- Debt-oriented hybrid funds
- Equity-oriented hybrid funds
- Arbitrage funds
- Monthly income plans (MIP)
2018 ·