Different Types of Mutual Funds in India: You should know

Mutual funds are one of the most popular forms of investment in the market today. Mutual funds are managed by asset management companies (or AMCs) that pool investments from individual investors and groups with similar investment objectives. Fund managers are responsible for monitoring and managing these complementary investments. Mutual funds are the ideal vehicle for individual investors to access portfolios managed by companies. Read below to understand the different currencies found in this country.

There are various categories of funds that can be sorted according to their characteristics, type of assets, and investment goals. Furthermore, the changes can be made according to the preferences of investors. Explore the various forms of currency that are in circulation in India.

Based on Structure

Mutual funds are broadly classified into three types depending on their characteristics. The differences between these three types are mainly based on the ease of buying and selling the same currency. Let’s take a look at all three!

Open-ended

Open ended mutual funds are mutual funds that are usually bought/sold on demand. It does not provide any type of restrictions on the number of units or trading time limits. Investors can buy/sell these funds as per their convenience. Therefore, the unit capital of these funds keeps changing with new entries or exits. Additionally, open-ended funds may stop accepting new entries for certain reasons, such as the inability to manage more than a certain number of investors.

Close-ended

Close ended mutual funds are launched through NFOs. Once the NFO period ends, investors can no longer purchase closed-end funds. These funds are market traded and have a fixed maturity date. The actual price of the fund is determined by its net asset value. However, the trading prices of these funds vary greatly depending on supply and demand. Closed-end funds offer the highest level of freedom to fund managers.

Interval funds

Interval funds have similar characteristics to both open-end and closed-end funds. These funds are available only for a specific period of time (determined by the fund house). Interval funds attract many investors by generating higher returns. This helps investors achieve their short-term financial goals.

Types of Mutual Funds based on asset class

An asset class refers to a category of financial assets with similar characteristics and behavior, such as stocks, bonds, real estate, or cash equivalents. Browse through a variety of mutual funds categorized by asset class.

 Equity Funds

Equity funds invest in the stocks of companies. For example, large-cap equity funds target large, well-established companies, while small-cap funds focus on smaller, higher-growth companies.

 Debt Funds

 Debt funds provide steady returns by investing in bonds. This includes categories such as government bond funds and corporate bond funds.

 Money Market Funds

 Money market funds invest in low-risk, short-term securities such as government bonds and commercial paper.

 Hybrid Funds

Hybrid funds mix stocks and bonds, like balanced funds that seek growth and stability in one package.

Mutual Funds based on Investment Goals

You can also choose a fund based on your financial goals.

 Growth funds

Funds that invest primarily in high-yield stocks for the purpose of capital appreciation are considered growth funds. This fund may be an attractive option for investors seeking high returns over the long term.

 Tax-saving Funds (ELSS)

Equity-linked savings schemes primarily focus on investing in corporate securities within mutual funds. Nevertheless, you qualify for a tax deduction according to Section 80C of the Income Tax Act. The shortest time you can invest for is 3 years.

Liquidity-based funds

Some funds may be classified according to the liquidity of their investments. Ultra-term and liquid funds are ideal for short-term goals, while plans such as retirement funds have longer fixed periods.

 Capital protection funds

The fund invests partially in bonds and partially in stocks. This allows for capital protection, i.e. minimizing losses. However, returns are subject to tax.

 Fixed-maturity funds (FMF)

The fund directs its funds into debt market instruments that have the same or similar maturity periods as the fund itself. For example, a three-year maturity FMF invests in securities with a maturity of three years or less.

 Pension Funds

Pension funds invest with the idea that long-term investments will provide regular returns. These are hybrid funds that generally offer low returns but have the potential to provide consistent returns in the future.

FAQs

Q. Which type of mutual fund is safe?

A. The money market consists of safe, risk-free, short-term debt instruments, mostly government Treasury bills. The returns on them aren't substantial.

Q. How many types of SIP are there?

A. There are around 5 primary types of SIPs that you can invest in - regular SIP, flexible SIP, top-up SIP, trigger SIP, and perpetual SIP. Let's take a more in depth look at each type and get to know them better.

Q. What are the two main types of mutual funds?

A. Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards.

Q. What is a bluechip fund?

A. A blue chip fund is an equity scheme that offers its investors a portfolio of stocks that generate solid and stable yields for a long time. These stocks are high-market companies, meaning the risk factor is relatively low. One can also consider blue chip funds as a sound financial scheme with decent returns.

Also Read: Best silver stocks to invest in India 2024