Nowadays, the Mutual Fund industry has gained a lot of popularity due to its effective and efficient Investment Channel. However, choosing the right type of mutual fund for one’s investment needs is still a tedious job. In this blog, we will talk about the different types of Mutual Funds prevalent in India.
As per the recent data,the Indian Mutual Fund Industry is rising at an exponential pace and has recorded an AAUM (Average Assets Under Management) of Rs 23.16 trillion as of 28 February 2019. However, the AAUM of the industry on28 February 2009 stood Rs 5.09 trillion, which means the industry has registered a more than 4.5-fold increase in the last ten years.
Further, the most prevalent forms of Mutual Fund in India are as follows:
- Equity Funds;
- Debt Funds;
- Money Market Funds;
- Index Funds;
- Balanced Funds;
- Income Funds;
- Fund of Funds;
- Specialty Funds.
However, there are various other types of mutual funds offered by the Asset Management Companies (AMC) in the country.
We have bifurcated the same on the basis of structure, investment objective, asset class, risk, and specialty in the sections below.
Types of Mutual Funds on the Basis of Structure
The Mutual Funds bifurcated on the basis of Structure are as follows:
- Open-Ended Funds: The funds that have units open for redemption and purchase throughout the year are open-ended funds. Further, the purchase and redemption of these funds are made on the prevailing Net Value of Assets (NAV). These funds are ideal for those who want both investment and liquidity as they are not bound to any specific maturity tenures.
- Close-Ended Funds: A Close-Ended Fund means funds in which the units can be purchased or redeemed only at the initial stage of the offer period. That means units can be redeemed or purchased at the prescribed maturity date. Further, these schemes are often listed for trade on the recognized stock exchange to provide liquidity. Furthermore, these units or stocks are not eligible to be sold back once bought. However, they can only be sold through the recognized stock market at the prevailing value of the shares.
- Interval Funds: These mutual funds have the features and characteristics of both open-ended and close-ended funds. That means they are opened for repurchase or redemption of shares at different intervals throughout the fund tenure.
Types of Mutual Funds on the Basis of Asset Class
The Mutual Funds bifurcated on the basis of Asset Class are as follows:
- Equity Funds: The funds that invest in the equity stocks and shares of companies are known as Equity Funds. These funds are considered as high-risk funds. However, they also tend to offer high returns. Further, these funds include specialty funds, such as infrastructure, banking, and fast-moving consumer goods.
- Debt Funds: The funds that invest in debt instruments are known as Debt Funds. For example, government bonds, company debentures, and other fixed-income assets. Further, these assets are considered safe investments as they offer fixed returns.
- Money Market Funds: The funds that invest in liquid instruments are known as Money Market Funds. The term “Liquid Instruments” includes Treasury Bills, Commercial Papers, etc. Further, these investments are also considered safe investments and are best for those who are looking to get surplus funds with quick but moderate returns. Furthermore, these instruments are also called Cash Market.
- Hybrid Funds: The funds that blend of all the funds present under the asset class is known as Hybrid Funds.
Types of Mutual Funds on the Basis of Investment Objective
The Mutual Funds bifurcated on the basis of Investment Objective are as follows:
- Growth Funds: Growth Funds means the scheme in which the money is primarily invested in equity shares for providing capital appreciation. These funds are known as risky funds and are ideal for those investors who have a long-term investment timeline.
- Income Funds:Under this scheme, the money is primarily invested in fixed-income instruments, such as bonds and debentures, etc. The fund aims to provide capital protection,along with regular income to investors.
- Liquid Funds:In this scheme, money is primarily invested in either short-term or very short-term instruments, such as Treasury Bills, Commercial Papers, etc. The aim of this fund is to provide liquidity. Further, these funds are considered to be low on risk factors with moderate returns and are ideal for those investors who have a short-term investment timeline.
- Tax-saving Funds:The funds that primarily invest in equity shares are Tax-saving funds. The investments made under this fund qualifies for tax deduction under the Income Tax Act, 1961. Thesefunds include highrisk, but they also offer high returns if the fund performed well.
- Capital Protection Funds:The fundthatsplits between investment in fixed-income instruments and equity marketsis known as Capital Protection Funds. This fund ensures the protection of the principal amount that has been invested.
- Fixed Maturity Funds:When the assets are invested in the money market and debt instruments, it is known as Fixed Maturity Funds. In this fund, the maturity date is either earlier or thesame asof the fund.
- Pension Funds:Pension funds are those mutual funds that are primarily invested with a long-term goal in mind. Thesefunds are meant to offer regular returns when the investor is ready to retire. Further, the returns of this can be taken in lumpsums.
Types of Mutual Funds on the Basis of Specialty
The Mutual Funds bifurcated on the basis of Speciality are as follows:
- Sector Funds: The funds that are invested in a particular market sector are known as sector funds. Further, the return of this sector is tide-up to the performance of the selected sector.
- Index Funds: The funds that are invested in instruments that denote a specific index on an exchange so as to reflect the returns and movement of the index are Index Funds.
- Funds of Fund: These funds are known as Multi-Manager Fund. The returns of this fund depend on the performance of the target fund.
- Emerging Market Funds: The funds in which the investments are made, particularly in developing countries are emerging market funds.
- International Funds: These funds are also called foreign funds, and they offer investments in companies situated in other parts of the world.
- Global Funds: The funds wherein the investment made by the fund manager can be in a company located in any area of the world. However, these funds are different from the foreign or international funds as in global funds, investments can also be made in the investor’s own country.
- Real Estate Funds: The funds that are invested in companies that function in the real estate sector. Further, the fund manager can invest funds in builders, realtors, property management companies, etc.
- Commodity Focused Funds: The funds that are invested in companies working in the commodities market are known as Commodity Focused Funds. These companies include producers or mining companies.
- Market Neutral Funds: The funds that are not directly invested in the market are Market Neutral Funds. These funds are invested in treasury bills, Exchange Traded Funds, and securities. The reason behind these funds is to have a fixed and steady growth.
- Leveraged Funds: These funds are different from traditional mutual funds, and the revenue from these funds happens only when the markets fall as if they do well, then these funds will suffer loss.
- Exchange-Traded Funds: The combination of open and close-ended mutual funds is known as Exchange Traded Funds. These funds are traded on the recognized stock markets and offer a lot of liquidity.
- Gilt Funds: The funds that are invested primarily in government securities for the long-term are known as Gilt Funds.
Types of Mutual Funds on the Basis of Risk
The Mutual Funds bifurcated on the basis of Risk are as follows:
- Low Risk: A low riskfund is suitable for those who do not wish to take risk with the invested amount.
- Medium Risk:A medium risk fund denotes moderate risk, together with high returns.
- High Risk: A high risk mutual fund is suitable for that person who wants to take higher risks with his/her money and is looking forward to build wealth.
We at Growth Begins aim to spread awareness among the People about the Personal Finance and Investment Opportunity, which will help them in their financial journey. In this blog, we have tried our best to provide you in-depth knowledge about the types of mutual Funds. Hope you like this post.
You can also check out: Benefits of Investing in Mutual Fund