There are many types of Mutual Funds available in the market. You should know about every type of fund to take an informed investment decision before you start investing in mutual funds.
1. Types of Mutual Funds based on the structure
• Open-Ended Funds: Mutual Funds, in which units are open for purchase or redemption throughout the year at the prevailing NAVs, are known as open-ended funds. Open-ended funds compel the investors to stay invested for a long period.
Ideally, these funds are best for investors seeking high liquidity because investors can withdraw their funds any time because they are not bound to any specific maturity periods.
• Close-Ended Funds: Mutual funds, in which units can be purchased only during the initial offer period & redeemed only at a specified maturity date, is known as close-ended funds. These funds are often listed on a stock exchange for trading, & once these units or stocks are bought, they are sold through the stock market at the prevailing share price.
2. Types of Mutual Funds based on asset class
• Equity Funds: Equity funds are high-risk funds that invest in equity stocks/shares of companies. Equity funds are suitable for aggressive investors, who are seeking high returns.
• Debt Funds: Debt funds invest in debt instruments like debentures, government bonds, and other fixed income assets. They are safe investments, provide fixed returns and are good for conservative investors.
• Money Market Funds: Money Market funds invest in highly liquid money market instruments. These funds are a safe investment option for those looking for immediate but moderate returns.
• Balanced or Hybrid Funds: Balanced or Hybrid funds invest in a mix of asset classes & therefore includes a mixed proportion of Equity & Debt. This way the Hybrid Fund makes a balance between risk and returns.
3. Types of Mutual Funds based on investment objective
• Growth funds: Growth Funds invest primarily in equity stocks with the objective of wealth creation. They are risky, yet ideal for investors seeking higher returns & those having a long-term investment horizon.
• Income funds: Income funds invest primarily in fixed-income instruments with the objective of providing capital protection and regular income to its investors.
• Liquid funds: The objective of Liquid Funds is providing liquidity to its investor by investing in short-term financial instruments. They are low on risk & provide moderate returns.
• Tax-Saving Funds (ELSS): Investment is primarily done in equity shares & qualifies for deductions under the Income Tax Act. The fund is high on risk but also offer high returns.
• Capital Protection Funds: Capital Protection funds ensure the protection of the principle that has been invested for which the corpus is invested in both debt & Equity markets.
• Fixed Maturity Funds: These funds ensure that the assets are invested in debt and money market instruments with a maturity date of the underlying assets, is either same as that of the fund or earlier than it.
• Pension Funds: Investments is done in both Equity & Debt Market to balance risk & steady returns. You can receive returns as pension, either in a Lump sum or regular installments or a combination of both.
4. Types of Mutual Funds based on specialty
• Sector Funds: Sector funds invest in a particular sector of the market & returns are tied to the performance of the sector.
• Index Funds: Passive fund whose portfolio matches the components of the broader index such as the Nifty 50 or S&P BSE Sensex.
• Fund of funds: Also known as Multi-Manager Fund, these funds invest in other funds & are relatively safe.
• Real estate funds: Money is invested in companies that operate in the real estate sectors, like realtors, builders & loans company
• Commodity focused stock funds: Investment is not done directly in the commodities but in companies who are working in the commodities segment like miners.
• Asset allocation funds: In these funds, the portfolio managers can adjust the allocated assets to achieve results.
• Gilt Funds: Gilt funds are risk-free mutual funds where the funds are invested in government securities for a long term.
• Exchange traded funds: These funds are a mix of both open and close ended mutual funds and are traded on the stock markets. They are managed passively and offer a lot of liquidity.
If the availability of a variety of Mutual Funds is confusing you, the best way is to seek professional advice from a financial advisor
1. Types of Mutual Funds based on the structure
• Open-Ended Funds: Mutual Funds, in which units are open for purchase or redemption throughout the year at the prevailing NAVs, are known as open-ended funds. Open-ended funds compel the investors to stay invested for a long period.
Ideally, these funds are best for investors seeking high liquidity because investors can withdraw their funds any time because they are not bound to any specific maturity periods.
• Close-Ended Funds: Mutual funds, in which units can be purchased only during the initial offer period & redeemed only at a specified maturity date, is known as close-ended funds. These funds are often listed on a stock exchange for trading, & once these units or stocks are bought, they are sold through the stock market at the prevailing share price.
2. Types of Mutual Funds based on asset class
• Equity Funds: Equity funds are high-risk funds that invest in equity stocks/shares of companies. Equity funds are suitable for aggressive investors, who are seeking high returns.
• Debt Funds: Debt funds invest in debt instruments like debentures, government bonds, and other fixed income assets. They are safe investments, provide fixed returns and are good for conservative investors.
• Money Market Funds: Money Market funds invest in highly liquid money market instruments. These funds are a safe investment option for those looking for immediate but moderate returns.
• Balanced or Hybrid Funds: Balanced or Hybrid funds invest in a mix of asset classes & therefore includes a mixed proportion of Equity & Debt. This way the Hybrid Fund makes a balance between risk and returns.
3. Types of Mutual Funds based on investment objective
• Growth funds: Growth Funds invest primarily in equity stocks with the objective of wealth creation. They are risky, yet ideal for investors seeking higher returns & those having a long-term investment horizon.
• Income funds: Income funds invest primarily in fixed-income instruments with the objective of providing capital protection and regular income to its investors.
• Liquid funds: The objective of Liquid Funds is providing liquidity to its investor by investing in short-term financial instruments. They are low on risk & provide moderate returns.
• Tax-Saving Funds (ELSS): Investment is primarily done in equity shares & qualifies for deductions under the Income Tax Act. The fund is high on risk but also offer high returns.
• Capital Protection Funds: Capital Protection funds ensure the protection of the principle that has been invested for which the corpus is invested in both debt & Equity markets.
• Fixed Maturity Funds: These funds ensure that the assets are invested in debt and money market instruments with a maturity date of the underlying assets, is either same as that of the fund or earlier than it.
• Pension Funds: Investments is done in both Equity & Debt Market to balance risk & steady returns. You can receive returns as pension, either in a Lump sum or regular installments or a combination of both.
4. Types of Mutual Funds based on specialty
• Sector Funds: Sector funds invest in a particular sector of the market & returns are tied to the performance of the sector.
• Index Funds: Passive fund whose portfolio matches the components of the broader index such as the Nifty 50 or S&P BSE Sensex.
• Fund of funds: Also known as Multi-Manager Fund, these funds invest in other funds & are relatively safe.
• Real estate funds: Money is invested in companies that operate in the real estate sectors, like realtors, builders & loans company
• Commodity focused stock funds: Investment is not done directly in the commodities but in companies who are working in the commodities segment like miners.
• Asset allocation funds: In these funds, the portfolio managers can adjust the allocated assets to achieve results.
• Gilt Funds: Gilt funds are risk-free mutual funds where the funds are invested in government securities for a long term.
• Exchange traded funds: These funds are a mix of both open and close ended mutual funds and are traded on the stock markets. They are managed passively and offer a lot of liquidity.
If the availability of a variety of Mutual Funds is confusing you, the best way is to seek professional advice from a financial advisor
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