3 Basics of Mutual Fund – Part 2 (Types of Mutual Fund)

3 Basics of Mutual Fund – Part 2 (Types of Mutual Fund)


What are the different kinds of Mutual Fund Scheme?

  1. Mutual Fund Schemes based on Structure:

  • Open Ended – these schemes do not have a fixed maturity. Open ended mutual fund ensures liquidity by announcing sale and repurchase price for the unit of an open-ended fund.
  • Closed Ended – These schemes have fixed maturity. There is a lock-in period for the investor. Sometimes, closed-end schemes provide a re-purchase option to the investors; it can be for a specified period or after the specified period. 
  1. Mutual Fund Schemes based on investment objective:

  • Equity Schemes – Equity Schemes primarily invest in shares. Investment could be in growth stocks, or value stocks. The various kinds of equity schemes are as following.
  • Mid Cap – Mid Cap funds invest in companies from different sectors, but they put some restriction in terms of the market capitalization of a company. Generally they invest largely in a BSE Mid Cap Stock.
  • ELSS – ELSS is an open-ended equity growth scheme. These funds primarily invest in equity shares. Investments made in ELSS are eligible for deductions under the Income Tax Act.

Although ELSS are considered as high risk fund scheme but also offer you high returns if the fund performs well.

  • Growth Funds – Growth fund is ideal for the investors who have long-term investment objectives. Under these funds, money primarily invests in equity stocks with an objective of providing capital appreciation.

Although, growth funds are risky funds, but these funds are the best option for those, looking for higher returns on their investments.

  • Income Funds – in income fund schemes, money is primarily invests in fixed-income instruments, like Bonds, debentures etc. the purpose of this fund is to provide regular income and capital protection to the investors.
  • Liquid Funds – under this scheme money primarily invests in short-term and very short-term instruments like T-Bills, Commercial paper, Certificate of Deposits, etc.
  • Fixed Maturity Funds – these funds invest money in debt and money market instruments, where maturity date is either same as that of the fund or earlier than it.
  • Pension Funds – the purpose of pension funds is to serve a post retirement requirements of investors. So these funds provide regular returns to investor at the time of his/her retirement.

 Investment in pension funds split between equities and debt markets, in which investments in equities provide higher returns and debt markets balance the risk and provide low but steady returns.

  1. Types of Mutual Funds based on Asset Class

Based on asset class mutual Funds are of three types as following

  • Equity Funds – these funds invest in shares of the companies. Generally these funds are considered as high risk funds also provide high returns
  • Debt Funds – these funds invest in debt instruments like debentures issued by any company, government bonds and other fixed income assets.

Generally debt funds are considered as safe investments and provide fixed returns. Debt funds do not deduct tax at source, so if your earning from debt funds is more than Rs. 10, 000 then investor is liable to pay tax on it himself.

  • Money Market Funds – Money Market Funds invest in money market instruments, these instruments are very liquid instruments like T-bills, CPs, and CDs etc.

If you have surplus fund and you are looking for moderate returns, it is the best option for you to invest.

  • Balanced Funds – balanced funds also known as Hybrid funds. These funds invest in a mix of asset classes. In this fund the proportion of equity is higher than debt. Risk and Returns are balanced in these funds.

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