August 10, 2023

Types of Mutual Funds

Types of Mutual Funds

Based on Structure:

  1. Open-Ended Funds
  2. Closed-Ended Funds
  3. Interval Funds

Based on Asset Class:

  1. Equity Funds
  2. Debt Funds
  3. Hybrid Funds
  4. Money Market Funds
  5. Gold Funds
  6. Real Estate Funds
  7. International Funds
  8. Sectoral/Thematic Funds

Based on Investment Goals:

  1. Growth Funds
  2. Income Funds
  3. Balanced Funds
  4. Capital Protection Funds
  5. Tax Saving Funds
  6. Retirement Funds
  7. Children’s Education Funds

Based on Risk:

  1. Very Low-Risk Funds
  2. Low-Risk Funds
  3. Medium-risk Funds
  4. High-Risk Funds

Based on Specialization:

  1. Sector Funds
  2. Index Funds
  3. Funds of Funds
  4. Emerging Market Funds
  5. International/ Foreign Funds
  6. Global Funds
  7. Real Estate Funds
  8. Commodity-focused Stock Funds
  9. Market Neutral Funds
  10. Inverse/Leveraged Funds
  11. Asset Allocation Funds
  12. Gift Funds
  13. Exchange-traded Funds

Based on portfolio management

  1. Active and passive mutual funds 

This article covers: 

Structure of Mutual Funds

Open-Ended Mutual Funds

Open-ended mutual funds are investment funds that are designed to allow investors to buy and sell units of the fund at any time, based on the fund’s net asset value (NAV). 

Close-ended Mutual Funds

Interval mutual funds are a type of closed-end fund that offers investors periodic opportunities to buy or sell shares at predetermined intervals. 

Interval Mutual Funds

Interval funds offer a unique combination of features from both closed-end funds and open-ended funds. They are similar to closed-end funds because investors cannot buy or sell units frequently. These funds may also be listed on a stock exchange, and redemption may be allowed during specified periods at prevailing Net Asset Value (NAV).

Mutual Fund Asset Class

Equity Mutual Funds

These funds invest their assets primarily in different companies’ stocks based on the investment objective of the underlying scheme. 

Large Cap Mutual Funds

These mutual funds put money into companies having a market cap of Rs. 20,000 crores or more than that. Some examples of large-cap companies in India include Tata Consultancy Services, Reliance Industries, HDFC Bank, and Infosys.

Mid Cap Mutual Funds

These funds primarily invest in the stocks of mid-sized companies having market capitalization above Rs. 5,000 crores but below Rs. 20,000 crores. These companies are smaller than large-cap companies but bigger than small-cap companies and are considered to be in a sweet spot of growth potential. 

Small Cap Mutual Funds

These funds invest in small-cap companies, which are the smallest publicly traded companies in the market, having a market cap of less than Rs. 5,000 crores. Small-cap companies have higher growth potential but also come with higher risks.

Multi-Cap Mutual Funds

Multi-cap mutual funds are a type of mutual fund that invests in companies of different market capitalizations, including large-cap, mid-cap, and small-cap companies. These funds provide investors with a diversified portfolio of stocks which can help reduce risk and enhance returns.

One of the benefits of multi-cap mutual funds is their flexibility. 

Large & Mid Cap Mutual Funds

Large & Mid Cap Mutual Funds are a type of mutual fund that invests in a combination of large-cap and mid-cap companies’ stocks. These funds typically invest in the top 250 companies in India, including established large-cap companies and growing mid-cap companies. 

Dividend Yield Mutual Funds

Dividend Yield Mutual Funds are a type of mutual fund that invests primarily in stocks that pay high dividends. The objective of these funds is to generate regular income for investors through dividend payouts while also providing the potential for capital appreciation over the long term.

Value Mutual Funds

Value Mutual Funds are a type of equity mutual fund that follows a value investing strategy. The objective of these funds is to identify companies that are undervalued or are currently trading at a discount to their intrinsic value and have the potential to provide long-term growth and higher returns. 

Contra Mutual Funds

Contra Mutual Funds are those which invest in stocks that are not performing well in the current market trend. This is basically done to maximize the benefit from the investment when the market trend changes.

Focused Mutual Funds

These funds invest in a limited number of stocks, typically between 20 to 30 stocks. The idea behind focused funds is to build a portfolio of high-conviction stocks that the fund manager believes have the potential to generate superior returns over the long term.

Sectoral or Thematic Mutual Funds

Sectoral and thematic mutual funds are open-ended mutual funds that invest at least 80% of their assets in a particular sector or theme. Sectoral mutual funds focus on a particular sector, such as banking, healthcare, or technology. 

ELSS Mutual Funds

ELSS (Equity Linked Saving Scheme) is a type of mutual fund that invests a major portion of the corpus in equity or equity-related instruments. ELSS funds come with a tax-saving benefit under section 80C of the Income Tax Act, which allows for a deduction of up to Rs. 1.5 lakh from taxable income. 

Debt Mutual Funds

Debt mutual funds are a type of mutual fund that invests in fixed income securities like bonds, government securities, debentures, and money market instruments. The primary objective of debt funds is to generate stable returns with lower risk as compared to equity mutual funds.

Overnight Mutual Funds

Overnight mutual funds are a type of debt mutual fund that invests in fixed income securities with a maturity period of up to one day. These funds invest in high-quality debt securities and money market instruments that mature overnight, making them one of the safest mutual fund investments.

Liquid Mutual Funds

Liquid mutual funds are a type of debt mutual fund that invests in short-term money market instruments such as treasury bills, commercial papers, and certificates of deposit with a maturity period of up to 91 days. These funds are considered to be low-risk and highly liquid investments.

Ultra Short Duration Mutual Funds

Ultra Short Duration Mutual Funds are a type of debt mutual funds that invest in debt and money market instruments with a maturity period of 3 to 6 months. 

Low Duration Mutual Funds

Low Duration Funds are a type of debt mutual fund that invests in fixed-income securities. These funds have a relatively short maturity period of 6 to 12 months, which makes them less risky than other types of debt funds with longer durations.

Money Market Mutual Funds

Money Market Mutual Funds are a type of debt mutual fund that invest in short-term, high-quality, and low-risk money markets instruments such as Treasury bills, commercial papers, certificates of deposit, and other money market instruments. These funds aim to provide low-risk returns over a short investment horizon.

Short Duration Mutual Funds

Short Duration Mutual Funds are debt funds that invest in fixed-income securities with a 1-3 years maturity period. These funds are considered to be moderately low-risk and offer better returns than liquid, ultra-short, and low-duration funds.

Medium Duration Mutual Funds

Medium-duration mutual funds are a type of debt mutual fund that invests in debt instruments with a maturity period of 3 to 4 years. These funds aim to give investors moderate returns over a medium-term investment horizon while maintaining a relatively lower risk profile than long-term debt funds.

Medium to Long Duration Mutual Funds

Medium to Long Duration Mutual Funds are debt mutual funds that invest in fixed-income securities with a maturity period of 4 to 7 years. These funds are subject to changes in interest rates which are impacted due to the changes in the market conditions.

Long Duration Mutual Funds

These funds invest in fixed-income securities with a longer maturity period of 7 years or more. These funds aim to provide higher returns to investors over a long-term investment horizon, but they come with a higher level of risk due to their exposure to interest rate fluctuations.

Dynamic Bond Mutual Funds

Dynamic bond mutual funds are a type of debt mutual fund that invests in a mix of short-term and long-term debt instruments, such as government securities, corporate bonds, money market instruments, and so on. The fund manager can switch between different types of instruments and adjust the portfolio’s duration based on the prevailing interest rates in the market. 

Corporate Bond Mutual Funds

Corporate bond mutual funds are a type of debt mutual fund that invests primarily in company-issued bonds. These funds lend at least 80% of their money to companies with the highest possible credit rating. 

Credit Risk Mutual Funds

Credit Risk Mutual Funds are debt mutual funds that invest at least 65% of their corpus in debt instruments of lower credit ratings. 

Gilt Mutual Funds

Gilt Mutual Funds are a type of debt mutual fund that invests mainly in government securities such as treasury bills, bonds, and securities issued by central and state governments.

Gilt Mutual Funds with 10-year constant Duration

Gilt Mutual Funds with a 10-year constant duration is a specific type of debt mutual fund that invests primarily in government securities with a constant duration of 10 years. 

Floater Mutual Funds

Floater Mutual Funds are a type of debt mutual fund that invest at least 65% of their assets in floating-rate securities, which have interest rates that are adjusted periodically to reflect changes in the repo rate, inflation, and other market conditions.

Balanced or Hybrid Mutual Funds

This fund helps you diversify your portfolio as they invest in equity and fixed-income securities.

Conservative Hybrid Mutual Funds

This fund invests majorly in fixed income instruments such as FD, Bonds, etc, and some part in equity. It offers more returns than FD. 

Balanced Hybrid Mutual Funds

These funds invest in multiple asset classes such as equity, fixed income securities, and others. It helps you to minimize the risk. 

Aggressive Hybrid Mutual Funds

These funds invest a major allocation in equity and a part in fixed income securities. 

Dynamic Asset Allocation Mutual Funds / Balanced Advantage Mutual Funds

This mutual fund invests in a mix of equities and fixed income securities such as bonds, money market instruments, and cash equivalents. The allocation between these assets is dynamically managed by the fund manager based on market conditions.

Multi-Asset Allocation Mutual Funds

These funds invest in a combination of different asset classes such as equity, debt, and other alternative assets like gold, real estate, etc. The main objective of these funds is to provide investors with diversification across multiple asset classes, thereby reducing overall portfolio risk.

Arbitrage Mutual Funds

Arbitrage mutual funds are a type of hybrid mutual fund that invest 65% of its assets in equity and remaining in other asset classes and aim to generate returns by exploiting price differences between two markets. In simple terms, the fund manager buys securities in one market and sells them in another market where the same securities are trading at a higher price, thereby making a profit.

Equity Savings Mutual Funds

These funds equally allocate their money to equity, fixed income securities, and hedging instruments. Hence, it helps you to generate stable returns. 

Solution-oriented Mutual Funds

Retirement Mutual Funds

These funds invest in various securities, such as stocks, bonds, and other assets, to provide a steady stream of income during retirement.

Children’s Mutual Funds

Children’s mutual funds are investment vehicles that are specifically designed to help parents save money for their children’s future education expenses or other financial goals.

Other Mutual Funds

Index Mutual Funds / ETFs

Index mutual funds invest in a specific stock markets index, such as the Nifty 50 or the BSE Sensex, and aim to replicate the index’s performance. It is suitable for long-term investors. 

Funds of Funds

Funds of Funds invest in other schemes of mutual funds through a single investment. In other words, they invest in a diversified portfolio of other mutual funds with different investment objectives and asset classes. By investing in this fund, investors can gain exposure to a broad range of asset classes and investment strategies without researching and managing individual mutual funds.

Mutual Funds Based on Investment Goals

Growth Mutual Funds

invest in companies that are expected to grow faster than the overall market, with the aim of generating capital appreciation.

Income Mutual Funds

Income mutual funds, also known as fixed-income funds or debt funds, invest primarily in debt instruments such as bonds, treasury bills, corporate bonds, government securities, and money market instruments. 

Tax-saving Mutual Funds (ELSS)

Equity Linked Saving Scheme (ELSS) is a mutual fund offering tax benefits under Section 80C of the Income Tax Act. Investments up to INR 1.5 lakhs in ELSS schemes are eligible for tax deductions.

Liquidity-based Mutual Funds

Liquid mutual funds, also known as money market funds, are mutual funds that invest in short-term, highly liquid money market instruments such as treasury bills, commercial papers, certificates of deposit, and call money market.

Capital Protection Mutual Funds

Capital protection mutual funds aim to protect the investors’ capital investment while providing a reasonable rate of return. 

Fixed-maturity funds (FMF)

Fixed Maturity Funds (FMPs) are a type of debt mutual fund that invests in fixed-income securities like bonds, debentures, and money market instruments with a fixed maturity date. 

Pension Mutual Funds

Pension mutual funds, also known as retirement mutual funds, invest in a mix of equity and debt instruments.  They provide regular fixed returns and do not depend on market fluctuation. 

Mutual Funds Based on Risk

Very Low-Risk Mutual Funds

Very low-risk mutual funds are suitable for those who want to park their money for 1 month to 1 year and do not want to take risks. These funds offer low returns, which is 6%. 

Low-Risk Mutual Funds

Low-risk mutual funds are suitable during uncertain times such as national crises or high inflation. It offers returns ranging from 6 to 8%. 

Medium-risk Mutual Funds

This fund invests majorly in equity mutual funds and the rest in debt. The returns can range from 9 to 12%. 

High-Risk Mutual Funds

This fund suits aggressive investors who want to earn huge investment returns. You can earn returns from 15 to 20%.

Mutual Funds based on specialty

Sector Mutual Funds

Sector mutual funds are a type of equity mutual fund that invests in stocks of companies belonging to the same industry or sector. 

Emerging market Mutual Funds

Emerging market mutual funds are funds that invest in securities from emerging countries with developing economies. These funds can invest in diverse stocks spread across different sectors, countries, and market capitalizations. 

International/ Foreign Mutual Funds

International or foreign mutual funds are mutual funds that invest in securities issued by companies located outside the investor’s home country. Investing in these funds allows you to diversify your portfolio across different geographical locations. 

Global Mutual Funds

Global mutual funds invest in global companies like Amazon, Google, and Facebook. Investing in these funds allows you to diversify your portfolio across different geographical locations.

Real Estate Mutual Funds

Real estate mutual funds invest in companies that invest in the real estate sector. If you think real estate will grow in the coming years, you can consider investing in it. 

Commodity-focused Stock Mutual Funds

Commodity mutual funds invest in commodities like metal, sugar, oil, petroleum, etc., which helps you to diversify your portfolio. 

Market Neutral Mutual Funds

Market-neutral mutual funds use an investment strategy that helps them earn returns in falling and booming markets. 

Inverse/Leveraged Mutual Funds

Inverse/Leveraged Mutual Funds are specialized mutual funds that use complex financial instruments to provide returns that are inversely proportional or leveraged to the performance of the underlying index or benchmark.

Asset Allocation Mutual Funds

Asset allocation mutual funds are a type of mutual fund that invests in a mix of equity, debt, and other asset classes such as gold, real estate, and commodities. 

Mutual Fund based on Portfolio Management

Active Mutual Funds

Active mutual funds are investment funds managed by professional fund managers who actively buy and sell securities within the fund’s portfolio to generate returns that outperform the market or a benchmark index. 

Passive Mutual Funds

Passive mutual funds are investment funds that aim to replicate the performance of a particular stock market index or benchmark. The portfolio of a passive mutual fund is designed to mirror the composition of the underlying index, which means that the fund will hold the same stocks as the index and in the same proportions.

Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.

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Types of Mutual Funds- Quick Summary

  • Types of mutual funds based on structure: Open-ended Mutual Funds, Close-ended Mutual Funds, and Interval Mutual Funds.
  • Types of equity mutual funds based on asset class: Large Cap Mutual Funds, Mid Cap Mutual Funds, Small Cap Mutual Funds, Multi Cap Mutual Funds, Large & Mid Cap Mutual Funds, Dividend Yield Mutual Funds, Value Mutual Funds, Contra Mutual Funds, Focused Mutual Funds, Sectoral or Thematic Mutual Funds, ELSS Mutual Funds, Arbitrage Mutual Funds, Equity Savings Mutual Funds, Solution-oriented Mutual Fund, Retirement Mutual Funds, Children’s Mutual Funds, Funds of Funds. 
  • Types of Debt Mutual Funds: Overnight Mutual Funds, Liquid Mutual Funds, Ultra Short Duration Mutual Funds, Low Duration Mutual Funds, Money Market Mutual Funds, Short Duration Mutual Funds, Medium Duration Mutual Funds, Medium to Long Duration Mutual Funds, Long Duration Mutual Funds, Dynamic Bond Mutual Funds, Corporate Bond Mutual Funds, Credit Risk Mutual Funds, Gilt Mutual Funds, Gilt Mutual Funds with 10-year constant duration, Floater Mutual Funds. 
  • Types of Balanced or Hybrid Mutual Funds: Conservative Hybrid Mutual Funds, Balanced Hybrid Mutual Funds, Aggressive Hybrid Mutual Funds, Dynamic Asset Allocation Mutual Funds / Balanced Advantage Mutual Funds, and Multi-Asset Allocation. 
  • Types of Mutual Funds based on Investment Goals: Growth Mutual Funds, Income Mutual Funds, Tax-saving Mutual Funds (ELSS), Liquidity-based Mutual Funds, Capital protection Mutual Funds, Fixed-maturity funds (FMF), Pension Mutual Funds. 
  • Types of Mutual Funds based on Risk: Very Low-Risk Mutual Funds, Low-Risk Mutual Funds, Medium-risk Mutual Funds, High-Risk Mutual Funds. 
  • Types of mutual funds based on specialty are Sector Mutual Funds, Emerging Market Mutual Funds, International/Foreign Mutual Funds, Global Mutual Funds, Real Estate Mutual Funds, Commodity-Focused Stock Mutual Funds, Market Neutral Mutual Funds, Inverse/Leveraged Mutual Funds, Asset Allocation Mutual Funds and Gift Mutual Funds. 
  • Types of mutual funds based on portfolio management are active and passive mutual funds.  

Types of Mutual Funds- Frequently Asked Questions

1. What are the 4 types of mutual funds?

  1. Equity mutual funds
  2. Short-term debt mutual funds 
  3. Bond mutual funds
  4. Hybrid mutual funds

2. Which mutual fund has highest return?

Equity Mutual Fund gives the highest return. However, the returns depend on various factors such as the type of fund, the investment strategy, the market conditions, and the fund manager’s skill. Moreover, past performance is not a guarantee of future returns.

3. What is the safest mutual fund?

Money market funds, short-term bond funds, and government bond funds. These types of funds generally invest in low-risk securities with a short-term maturity, which can help to minimize volatility and potential losses. 

4. What is No 1 mutual fund?

Each mutual fund is designed with a specific investment objective in mind, and different investors may have different preferences for the types of investments they want to make. So choose a mutual fund considering your risk tolerance, investment horizon, and objective. 

5. Which type of mutual fund is best?

  1. Equity Funds
  2. Debt Funds
  3. Balanced Funds
  4. Index Funds

6. Which mutual fund is tax free?

In India, Equity Linked Saving Scheme (ELSS) is a mutual fund offering tax benefits under Section 80C of the Income Tax Act. Investments up to INR 1.5 lakhs in ELSS schemes are eligible for tax deductions. 

7. Which mutual fund is best for beginners?

If you are a beginner and want to start your investing journey, you can start by investing in NIfty 50 index funds as they invest in the top 50 companies. Index funds are managed passively, which is why the expense ratio is low. 

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