Types of Mutual Funds in India : Explore Best Mutual Fund Schemes

Every one knows today investment in Mutual Funds growing in tremendous pace. So being smart investor you must be aware about different types of Mutual funds available in India. In this article we are going to list out various types of mutual funds that you must consider while investing.

Before listing mutual fund types lets define why its said “Mutual Funds Sahi Hai”

What are Mutual Funds?

Mutual funds can be consider as investment vehicle that allows investor to invest their fund in systematic manner.

Fund managers manages Mutual Funds. So you need not to worry about your investment. They takes care about your invested capital and monitors your portfolio in very systematic manner.

Mutual funds are safe and secure way to invest in financial market. You can start investing in mutual fund with as low as Rs 100 per months. That’s why there is well know saying “Mutual Funds Sahi Hai”

AMFI is SEBI registered Association of Mutual Funds in India. Mutual funds are hosted my Asset Management Companies where as AMFI monitors over this companies.

Disclaimer : Investments are subject to market risk. Please consult your investment adviser before investing in equity market.

Types of Mutual Funds

Mutual funds provides investor flexible way of investment. We have broadly categorize all mutual funds in 4 major types. They are as below –

Mutual Funds Based on Structure

Open Ended Funds

Open ended mutual funds allows fund houses to make purchase of mutual fund units at NAV (Net Asset Value). These funds lets investors to buy and sell units on continuous basis. Units are traded base on NAV this is declared by fund house on daily basis.

Thus, open ended mutual funds are always open to investor for making purchases of units. Its most common type of mutual fund available.

Close Ended Funds

Unlike in open ended funds, investors cannot buy units of close ended funds after NFO (New Fund Offer) period is over. In other words neither the new investors can enter nor existing investors can exit till the term of the scheme ends.

Close ended funds price is less as compare to normal price per unit due to less trading volume. Its price is just like stocks based on demand and supply.

Interval Funds

An interval fund is type of fund that makes periodic repurchase offers to its shareholders as disclosed in the funds prospectus and annual report. When the fund makes periodic repurchase offer to its shareholders it will also specify a date by which shareholders must accept the repurchase offer.

The price that shareholders receives on repurchase will be based on the per share NAV determined as of a specified date.

Types of Mutual Fund Based on Asset Class

Equity Funds

Equity funds are mutual funds that specifically invest in equity stock market. This funds consider to be most risky type of mutual funds but they tends to provide higher returns on investment in long term.

Further, equity funds are classified based on market capitalization. Large cap funds tends to be less risky with average return of 15% – 20% per annum. On other hand small cap funds tends to be more risky but they give higher returns in long term. Mid cap funds carry moderate risk with great returns.

Debt Funds

Debt funds are mutual funds that invest in fixed income security bonds and treasury bills. Few debt mutual funds types are gilt funds, short term plans, liquid funds and fixed maturity plans

Debt mutual funds are best for investors those who do not want to invest in high risk equity market. It carry almost negligible risk but unlike equity funds you cannot except higher returns.

Money Market Funds

Money market mutual funds was originally used as an alternate term for liquid funds. This funds primarily invest in various money market instruments like call money, treasury bills, interest rate swaps and ready forward contract (repo).

Money market mutual funds are consider among the lowest risk debt funds.

Balance Funds

Balance funds are also known as hybrid mutual funds. This fund invest in both equity market and debt instruments in balanced ratio. Thus, balance funds carry lower risk as compare to equity funds

Balance mutual fund allows fund manager to move between equity and debt without incurring tax liability for investors.

Mutual Funds Type Based Specialty

Sector Funds

Sector funds invest mainly in stock companies that operates in particular sector of industry.

Since its sector specific fund such funds offer less amount of diversification and are considered to be bit risky.

Index Funds

Index funds are those funds which invest in security market indices in exact proportion. Fund managers here focus on two major indices in India

• BSE Sensex
• Nifty

Index funds delivers returns more or less equal to benchmark. Its ideal for investors who are well aware of expected risk and predictable returns.

Fund of Funds

Fund of funds also known as multi manager funds. As name suggest fund of funds it allows investor to invest in other mutual funds and diversify investment portfolio.

Its portfolio contains different underlying portfolios of other funds. Thus, expected returns will be solely depends on performance of targeted fund.

Emerging Market Funds

Emerging market mutual funds focus entirely on stocks domiciled in nations classified as emerging or developing by one or more of main indexing authorities.

Investment in such mutual funds are considered as risky as a lot of other factors depend on the performance of political and economic situations of the particular developing country.

International Funds

An international fund is fund that bound to invest in companies that are located anywhere outside of its domicile country. International funds in India also know as foreign funds.

These funds have potential of giving relatively higher returns due to their expanded investment horizon.

Global Funds

Global funds are similar to international funds that invest in stocks of companies that are located in different areas of world. The only difference from international fund is investor here can also invest in companies of his own country.

Real Estate Funds

A Real Estate Fund is a Sector Fund which invests in companies from real estate projects. This fund portfolio primarily includes stocks of real estate developers. Return on investment depends on the growth of this sector, with the sale and development of properties helping investors get decent returns.

A Real Estate Fund can comprise of investments either directly in real estate companies or in Real Estate Investment Trusts, with the fund managers choosing between these two depending on numerous factors.

Commodity Focused Funds

Commodity funds are mutual funds that seek to track the underlying price of various commodities and natural resources. This can include assets such as corn, copper, oil, wheat and gold.

Typically, these funds will invest in commodities futures and swaps to gain exposure to the spot prices of these assets.

Asset Allocation Funds

An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes.

The asset allocation of the fund can be fixed or variable among a mix of asset classes, meaning that it may be held to fixed percentages of asset classes or allowed to go overweight on some depending on market conditions. Assets can be equity-oriented, debt-oriented or even other asset classes like gold, other metals, and commodities.

Mutual Fund Based on Investment Objective

Growth Funds

A growth fund is mutual fund which invest in stocks of companies that has capital appreciation. Fund managers bound to keep their portfolio with stocks that are expected to growth in fast paced than overall stock market.

Growth fund portfolio mainly includes stocks that reinvest their earnings into expansion, acquisition, research, development and deliver higher returns to investors in long term. Its high risk investment instrument.

Income Funds

An income fund is a debt type of mutual fund which generates returns by investing in relatively long dated debt government bonds, securities and money market instruments like debentures, certificate of deposit.

They provide an excellent opportunity for those investors who want to earn a regular income. The benefit of the diversification of funds is an added advantage as it allows investment in equities as well as security bonds.

Liquid Funds

Liquid funds belong to the debt category of mutual funds. They invest in very short term market instruments like commercial paper, treasury bills, government securities and call money.

They are getting popular with retail investors due its easy liquidity and their higher returns compare to savings account.

Tax Saving Funds or ELSS

Tax saving mutual funds are Equity Linked Savings Scheme (ELSS). Its type of equity fund and the only mutual fund which qualifies for a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act.

The risk involve is similar to that of equity fund that we seen earlier. However the only difference in this fund carries 80C tax exemption.

Fixed Maturity Funds

Fixed maturity plans are debt funds that are close-ended. Investments here can be made only during the time of a new fund offer.

It comes with a fixed maturity period and invests across debt instruments like high rated securities and corporate bonds.

FMP matures with the scheme tenure. The tenure of an FMP can vary between a few months to a few years.

Pension Funds

Money invested in pension funds are invested for long term with aim of getting a regular pension on retirement.

Fund portfolio invests in equity and debt instruments. Equity helps the investment grow and debt intruments maintain a balance of risk in the investment.

The early you start planning for retirement, the more wealth you can create over a long period of time in order to create secured future after retirement.

Conclusion

We have understood mutual funds by categorizing them in 4 major types. Hope so you have liked my article.

Apart from this you might use our SIP calculator to check what returns you can earn investing in mutual funds on monthly basis.

Please comment if you have any questions and queries regarding mutual funds investment. I will be grateful to answer your questions in best possible manner

Thanks 🙂