Different types of mutual funds in india

Upon completing his MBA in logistics and supply chain management last year, Alekh had a singular focus – to find a well-paying job in the private sector and save up enough money to finance at least a part of his fees for an executive MBA from Cardiff University. He aimed to achieve this goal in the next five years, as this time horizon would help him accumulate enough relevant experience, in addition to padding up his savings for an expensive education in a foreign country. While Alekh’s parents were keen on furnishing a portion of the expenses, he planned on taking a loan for the remainder, thus fulfilling his ambition in a strategic and well-planned manner. Now, the question Alekh was grappling with was this – what should he do with the money he saved each month? Leaving it in his bank savings account or subscribing to a recurring deposit were not valid options, as neither of these channels could offer him the rate of return he needed to fulfil his goals. He then turned towards investment options and began researching on the types of mutual funds in India.  

Types of mutual funds in India

Over the last several years, mutual funds have emerged as a popular and accessible investment avenue for individuals seeking to grow their wealth while managing risk and, in the case of Alekh, who did not have a lumpsum saved up, mutual funds, with their systematic investment plan option, would be a great bet. In India, the mutual fund industry has witnessed significant growth, offering a diverse range of investment options to suit various financial goals and risk appetites. With various types of mutual funds in India, from equity fund and debt funds to hybrid funds, passive equity funds and passive debt funds, investors have the flexibility to tailor their portfolios to align with their specific needs. Let us take a look at the types of mutual fund schemes in India.

Schemes based on maturity period

• Open-ended funds : 

  Open-ended funds have no fixed maturity date, enabling investors to buy and sell units at any time, directly from the fund house. These funds offer high liquidity and flexibility, making them suitable for short- or long-term goals.

• Closed-ended funds :

  Closed-ended funds have a fixed maturity date. Investors can buy units only during the initial offer period, and redemption is typically allowed at the end of the maturity period. These funds may trade on stock exchanges like stocks during their tenure.

• Interval funds :

  Interval funds combine features of both open-ended and closed-ended funds, thereby allowing investors to buy and sell units at specific intervals, such as quarterly or semi-annually.
  

Based on principal investments

• Equity funds :

  As the name suggests, equity funds invest predominantly in stocks of companies listed on stock exchanges. They are known for their potential to deliver high returns over the long term. Equity funds are further classified based on the market capitalization of the stocks they invest in:

1. Large-Cap Funds: Invest in well-established and financially stable large companies
2. Mid-Cap Funds: Invest in companies with medium-sized market capitalisation, offering a balance between growth potential and risk
3. Small-Cap Funds: Invest in smaller companies with higher growth potential and higher risk

• Debt funds:

  Debt funds primarily invest in fixed-income securities like government bonds, corporate bonds, and debentures. They are considered lower-risk investments compared to equities and offer regular income through interest payments. Debt funds can be categorised based on their duration and the underlying securities:

1. Liquid Funds: Invest in very short-term money market instruments, providing high liquidity
2. Income Funds: Invest in a mix of short- to long-term debt securities
3. Gilt Funds: Invest in government securities, considered relatively safe
4. Dynamic Bond Funds: Adjust their portfolio duration based on interest rate expectations
5. Credit Risk Funds: Invest in lower-rated (higher-yield) corporate bonds, carrying higher credit risk

• Hybrid funds:

  Hybrid funds, also known as balanced funds, invest in a mix of equities and debt instruments. They aim to provide both capital appreciation and income. Hybrid funds can be classified based on the proportion of equity and debt in the portfolio:

1. Aggressive Hybrid Funds: Have a higher allocation to equities, suitable for moderate risk-takers
2. Conservative Hybrid Funds: Have a higher allocation to debt, suitable for conservative investors
3. Balanced Advantage Funds: Adjust their equity-debt allocation based on market conditions

• Passive Equity funds:

  Passive Equity Funds are also known as Index funds, these funds replicate the performance of a specific market index, such as the Nifty 50 or Sensex. They aim to match the index returns and have lower expense ratios compared to actively managed funds.

• Passive Debt funds:

  Passive debt funds track a specific debt index, investing in a portfolio of debt securities that mirrors the index. These funds are designed to provide returns similar to the benchmark debt index.
  

As you can see, the different types of mutual funds in India and the various types of mutual fund schemes available, offer investors like Alekh an incredible amount of variety to choose from. You can also pick the best fund for yourself by considering your personal investor profile, which includes aspects such as your risk appetite, return requirements, time horizon and investment goals. Start your mutual fund journey right away!

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms  

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY