Types of Mutual Funds in India

Investing in securities such as stocks, bonds, money market instruments, and other assets can be done through a mutual fund. It is a professionally managed investment scheme that pools funds from numerous investors. Professional money managers manage the mutual fund, allocating the assets in an effort to maximize investors’ returns through capital gains or income. The investing objectives outlined in the prospectus of a mutual fund are reflected in the portfolio’s structure and upkeep.

Mutual Funds Types According to Structure

Open-Ended Funds

An investor may contribute to, redeem from, or leave an open-ended mutual fund at any time. It has no set maturity time frame.

Close-Ended Funds 

Mutual funds with a closed-end have a set maturity date. Only during the initial time, also referred to as the New Fund Offer or NFO period, may an investor invest in or participate in these types of schemes. On the date of maturity, his or her investment will be immediately redeemed.

Interval Funds

The difference between open-ended and closed-ended mutual funds is filled by interval funds. They are offered as an initial offering and then opened for repurchases by the fund management company at various points throughout the fund’s tenure, similar to close-ended mutual funds. Initial unit owners have the option of selling their units to the mutual fund company.

Mutual Fund Types According to Asset Class

Asset class refers to the categorization of investments based on shared or comparable traits. They might also be covered by the same rules and legislation. As a result, mutual funds are categorized according to their asset class as follows:

Equity Mutual Funds

Multi Cap Fund

An open-ended equity fund called Multi-Cap Fund makes investments in the stock of large-, mid-, and small-cap companies. Since there is no set maturity date, the mutual fund is an open-ended strategy. The subscription and redemption options for the program are always open. A multi-cap fund devotes at least 65% of its total assets to equities and securities that are related to equity. The most diversified equity funds are multi-cap funds. Consequently, your risk is lower than that of a single large, mid, or small-cap focused fund. Large-cap stocks offer stability, while mid- and small-cap equities offer returns. As a result, the multi-cap fund gives you a secure portfolio with high returns. Multi-cap funds can be utilized to build wealth over the long term.

Large Cap Fund

An open-ended equity scheme called large-cap mutual funds invests mostly in the equities of large-cap firms. A minimum of 80% of the pool is set aside by large-cap mutual funds for investments in stock and equity-related securities of large-cap businesses. The large-cap mutual fund’s corpus is invested in dependable businesses with established operations and a history of strong financial success. Due to the less erratic stock values of large-cap firms and their long histories of operation, they may have the lowest volatility among equity mutual funds. By investing in large-cap funds, you have the potential for a steady wealth-creation opportunity.

Large and Mid Cap Fund

A mutual fund strategy called large & mid-cap fund offers the advantages of investing in both large-cap and mid-cap companies. At least 35% of the big and mid-cap fund’s total assets must be made up of equities and equity-related securities from large-cap businesses. Mid-cap company shares and equity-related instruments make up another 35% of the assets. The stability provided by large-cap stocks and the growth prospects of a mid-cap fund is combined in large and midcap funds.

Mid Cap Fund

An open-ended equity mutual fund that primarily invests in shares of mid-cap businesses is a mid-cap mutual fund scheme. Mid-cap mutual funds must invest a minimum of 65% of their total assets in mid-cap firms’ stocks and securities. The mid-cap corporations are expanding and are in a growth phase. So, compared to large-cap mutual funds, mid-cap mutual funds are more aggressive. Since they invest in mid-cap companies, mid-cap mutual funds have better returns but also higher levels of risk.

Small Cap Fund

An open-ended equity plan known as a small-cap fund invests mostly in small-cap stocks. The equity and equity-related instruments of small-cap businesses account for at least 65% of the assets under the management of small-cap mutual funds. Small-cap enterprises have a very high potential for future growth. They carry the greatest risk, but they also have the greatest potential for profit.

Other Types of Equity Mutual Funds

Debt Mutual Funds

Your funds are parked in fixed income instruments including bonds, treasury bills, and securities by debt mutual funds. Fixed Maturity Plans (FMP), Short Term Plans, Liquid Funds, Monthly Income Plans, Gilt Fund, Long Term Bonds, and others are among the debt instruments. All fixed income instruments have a fixed interest rate and are subject to set maturity date.

These investments are regarded as secure since they carry little risk. The returns, however, hardly ever outpace inflation. Additionally, TDS (tax deducted at source) is not deducted in the case of debt funds, therefore investors who earn more than Rs. 10,000 on their investment are responsible for paying the tax themselves.

Let’s go over each sort of debt fund in more depth.

Overnight Fund

An open-ended debt plan that invests in overnight securities is known as an overnight mutual fund. The residual maturity of the overnight securities is one day. T-Bills, call money, and certificates of deposits with a single day’s maturity are a few examples of overnight securities. The overnight fund makes investments in short-term securities with a one-day maturity. They provide a very safe investment option and are quite liquid. Investors can lodge their money for a few days with the aid of overnight funds. They offer returns that are higher than the savings rates that many banks give.

Liquid Fund

Open-ended debt mutual funds called liquid funds invest in very liquid securities. The securities are often T-bills, call money, collateral borrowings (CBLO), certificate of deposits (CDs), and commercial papers (CPs), which are money market products. A liquid mutual fund invests exclusively in debt and money market instruments with a maximum maturity of 91 days. They provide a very safe investment option and are quite liquid. You can keep extra cash in a liquid mutual fund for a few weeks to three months. To build an emergency fund for a variety of life situations, such as short-term financial difficulties brought on by a job loss and unexpected medical expenses, liquid funds are appropriate. Additionally, you can control your monthly costs and make arrangements using liquid funds. The best aspect is that after you request a redemption, your money is usually available within a day or two. As a result, the liquid fund enables you to outperform the rate on a savings account.

Ultra Short Duration Fund

An open-ended investment vehicle called ultra short duration funds makes investments in debt instruments having Macaulay durations between three and six months. In plain English, Macaulay’s duration is the amount of time it would take for a bondholder to recoup all of his initial investment through periodic principal and interest payments. The weighted average time period during which the cash flows on a portfolio’s bond holdings are received is used to determine the Macaulay duration. A fund with an ultra-short duration invests in debt instruments with a Macaulay duration of three to six months. Additionally very liquid and providing a rather stable investment option are ultra-short duration funds. A longer-duration fund is advantageous to investors since it offers reinvestment opportunities and somewhat higher yield. You can build a corpus to pay off an existing short-term loan or pay for a vacation.

Money Market Fund

An open mutual fund program called Money Market Fund invests primarily in money market assets like T-bills, CPs, and CDs. Mutual funds for the money market make investments in financial securities with a maximum maturity of one year. They provide a very safe investment option and are quite liquid. For a risk-averse investor who wants a higher yield and safe investments, money market funds are the best option.

Short Duration Fund

An open-ended short-term debt strategy known as a short duration fund invests in securities having a Macaulay duration of between one and three years. They provide a safe and profitable investment option. In situations where interest rates are rising, short-term investments are optimal. The Macaulay duration of the portfolio is between one year and three years thanks to the short duration’s investments in debt and money market instruments. Short-term debt instruments have a duration of one to three years. You gain from a potential for reinvestment as well as additional interest income. For conservative investors who want their money to grow without fluctuations, the low term fund is best. The short-term fund can be utilised to achieve life goals like paying for pricey international vacations and wedding costs.

Other Debt Mutual Funds

  • Medium Duration Fund
  • Long Duration Fund
  • Dynamic Bond Fund
  • Corporate Bond Fund
  • Credit Risk Fund
  • Banking and PSU Fund
  • Money Market Mutual Funds
  • Balanced Funds

Other Types of Mutual Fund Schemes

  • According to Investment Objectives
  • According to Speciality
  • According to Risk
What are Mutual Funds?
What are Mutual Funds?

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What is a mutual fund used for?

Investing in securities such as stocks, bonds, money market instruments, and other assets is done through a mutual fund.

What is an open-ended fund?

An investor may contribute to, redeem from, or leave an open-ended mutual fund at any time. It has no set maturity time frame.

What are mutual fund types according to structure?

Open-Ended Funds, Close-Ended Funds and Interval Funds

What are balanced funds?

These mutual fund schemes, as their name suggests, invest equally in equities and debt. Based on market risks, the allocation may continue to change. 

What are some types of debt mutual funds?

Medium Duration Fund, Long Duration Fund and Dynamic Bond Fund

What are some types of equity mutual funds?

Value Fund, Contra Fund and Sectoral/Thematic Fund

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