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
