Types of Mutual Funds

On different basis we can divide mutual funds in various categories, However most popular mutual Funds are Equity Funds, Debt Funds, Tax Saving Funds and Index Funds.

As per Asset Class Allocation

1.       (i) Equity Funds : This is most common and popular format of Mutual Funds. These funds invest collected money in stocks/shares of listed companies. This is a high-risk high gain type of Mutual Fund. One can invest in Equity Funds by both ways either SIP (Systematic Investment Plan (Monthly Instalment) or one-time lump sum amount. These Funds has further variations such as large cap funds, Midcap Funds, Smallcap Fund, Multicap Fund, Sector Specific Funds ( Banking Fund, Pharma Fund, FMCG Fund, Tech Funds, Global Funds, Emerging Market funds, Commodity focused Funds etc.)

2.       (ii) Debt Fund : Debt funds were in limelight in recent past due to low risk and fix returns. Debt funds invests money mostly in fixed income instruments such as corporate or govt. bonds, debentures and other fixed income assets.  These funds provide you a fix rate of return and due to their investment in fixed income instruments these are less volatile in terms of annual returns. One can choose these MF if interested in regular fix income. Debt funds can further be divided as Overnight / ultra Short term/Short term/ Medium term/ long term Funds, Liquid Funds, Floater fund etc.

3.      (iii) Money Market Funds :  Money market funds are actually debt funds which invests only in liquid instruments with fix maturity period (normally upto 1 year), for example commercial paper, high credit rating debt-based securities, cash and cash equivalent securities, treasury bills etc..

4.       (iv) Balanced or Hybrid Funds : This kind of MF invests money in different types of asset class i.e. mixed class of assets like some part in equities and some part in fixed income instruments. These are safer than equity funds but not as safe as Debt funds. Risk & returns in such MF schemes depends on ratio of funds invested in Equity and Debt instruments.

5.       (v) Index Funds : These are funds that invest in instruments that represent a particular index on an exchange. These MF schemes mirrors the movement and returns of the index e.g. buying shares representative of the BSE Sensex. These MF schemes are good for long term as ultimately markets are to go higher with increasing investor participation and Indian growth story, However in short term these schemes may not perform well due to high volatility in indices due to various reasons such as Covid, Global tensions etc.

6.       (vi) Funds of funds : These MF schemes do not have their own portfolio of assets rather they invest in other Mutual Fund Schemes, so instead of investing in different type of MF schemes one can enjoy benefits of all type of MF schemes by just investing in Funds of funds.

Based on flexibility of buying or redemption, Mutual Fund Schemes are further divided in three major categories as detailed below

1.       (i) Open Ended Schemes : These MF schemes allows investors to enter (Buy NAVs) or redeem NAVs at any point of time throughout the year. These MF schemes are open for both lump sum investment as well as SIPs (Systematic Investment Plans). Value of NAVs of theses schemes changes on daily basis as per scheme portfolio. You can select these schemes if you aims to liquidate or add more funds time to time. SIP option is one of the most popular route to invest in market through mutual funds.

2.       (ii) Close Ended Schemes : These MF schemes are open for investment only during the New Fund Offer (NFO) period and you can redeem the units only after completion of the fund lock-in period, i.e. on maturity, unless the fund is converted into an open-ended fund or the tenure rolls over. NAVs of these funds are available on stock exchange for trading as number of NAVs of a closed fund remains unchanged. (fixed at the time of NFO( IPO)). Investing in these scheme is good if your time horizon is long enough.

3.       (iii) Interval Funds: These MF schemes has features of both open-ended and close-ended funds. These schemes are open for repurchase of NAVs at different intervals (fixed) during the fund tenure. The fund management company offers to repurchase units from existing investors during these intervals and If unitholders interested in redeeming, they can offload NAVs in favor of the fund.

 

Based on objectives of investment many MFs has introduced special plans such as :

Pension Fund : Hybrid Funds, meant for regular returns after a certain period of SIP/Lump sum investment.

Growth Fund-Invests in equities for high returns

Tax saving Funds (ELSS)- Investment made in these schemes are eligible for deduction under Income Tax Act.

Capital Protection Funds : These are hybrid schemes with major ratio invested in debt instruments.

How To select Right Mutual Fund Scheme ?

There are more than 40 AMCs (Asset Management Companies) with almost 2500 different mutual fund schemes are present in India. Based on your investment strategy(SIP or Lump sum), goal to be achieved, risk appetite, time horizon, liquidity requirement and return expected you can choose best Mutual Fund Scheme. You can also use past performance in case of long term investment. You can check past performance of a mutual fund scheme on moneycontrol or economic times or many other websites.

Axis Mutual Fund is one of the leading mutual fund working in India. To open an account and start investment in Mutual Funds today you can click the link below