Types of Mutual Funds:

Mutual Funds provide immense opportunities for any type of investor. Based on risk appetite, you can choose the type of mutual fund you want to invest. If you are a high risk taker, you can invest more proportion of your money in equity related funds and if you are more interested in having a regular income with capital preservation, you can opt for debt related mutual funds. Mutual funds offer a one stop solution for all your varied needs. Let us understand the different types of mutual funds in this article.


Mutual funds and its types:

Mutual funds and types offer all possibilities to achieve your financial goals and help in saving tax. You can start investing even with a small amount through mutual funds by means of Systematic Investment Plan (SIP). SIP offers various flexibilities in terms of investing such as withdrawing amount at regular intervals and transferring funds from one mutual fund scheme to another. There are various types of mutual funds based on investment objective, flexibility and asset allocation.

Equity funds:

Equity funds invest anywhere between 65 to 100% of the corpus in equity. If you have a long term objective, you can invest in these funds.

Debt Funds:

Debt funds invest in bonds, government securities and money market instruments. If you want monthly income without much risk, you can choose debt funds.

Balanced Funds:

Balanced funds are preferred by those investors who need a combination of income, capital appreciation and safety from their investments. These funds help to mitigate risk. Balanced funds invest both in equity and debt. There are 2 categories in case of balanced funds; a. equity oriented balanced funds b. debt oriented balanced funds.

Equity oriented balanced funds:

65% of the portfolio is invested in equities and the remaining in debt securities which helps in wealth creation over a longer time period. Long term capital gain in excess of Rs. 1 lakh will be taxed at 10% without indexation whereas short term capital gain will be taxed at 15%.

Debt oriented balanced funds:

Majority of the portion is invested in debt securities. Investment horizon of less than 3 years is taxed at 10% and more than 3 years is taxed at 20% with indexation benefit

Based on Flexibility:

The two schemes based on flexibility are open ended and close ended funds.

Open ended:

These are available throughout the year for subscription and do not have a fixed maturity date. Liquidity is high and can be redeemed at the prevailing NAV. Open ended funds are not traded on the exchange. You can have the flexibility of switching from one fund to another. As these funds are invested in different companies and industries, this sort of diversification reduces risk.

Close ended:

You cannot invest in these funds after its NFO period gets over. This means that the existing investors cannot exit or even new investors cannot enter the scheme till the scheme’s term ends. These funds have a lock in period and have a maturity period. But as a means to help those investors who wish to exit the scheme before its term, the close ended funds get listed on the stock exchange

Interval Funds:

Interval funds have the features of both open ended and close ended schemes. These are traded on the exchange and become open ended during specific intervals. After the particular period, it becomes close ended.

Now let us learn the different types under Equity funds:

a. Diversified Equity Funds:

Here, your money will be invested in equities across industries and sectors. These funds help in reducing risk and also give better returns

b. Sector Funds:

Funds are invested in stocks of sectors or industries and the returns depend on the respective sector or industry. Risk is high in this case as the performance of the fund entirely depends on a single sector. Aggressive investors can choose this type of fund. The major objective of these funds is to enable the investors to get good returns from a particular industry or sector that has huge growth potential.

c. Equity linked savings schemes (ELSS)

ELSS mainly invests in equities. These are tax saving schemes and have a lock in period of 3 years. You can get tax exemption of Rs. 1.5 lakh under Sec 80 C of the Income Tax Act. These funds give high returns if you stay invested for a longer time period.

A quick glance of the various types of debt funds:

Liquid Funds:

These invest in short term instruments like Commercial Paper, Certificates of Deposit, etc. and these funds help in capital preservation, easy liquidity and regular income. The maturity period of these funds can be less than 91 days. These are low risk instruments and least volatile as well due to their very short term maturity period. These funds are highly flexible as redemption can be done whenever the investor needs money.

Gilt Funds:

These invest in government securities. Gilt funds are considered to be safer as these are mainly invested in government securities. You can prefer these funds if you are risk averse or a conservative investor. Your capital can be protected and no credit risk is involved. Hope this article gave you a quick glimpse of the different types of mutual funds in India. Why are you waiting? Start investing in mutual funds.



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