Different Types Of Mutual Funds

Mutual funds are a great way to save for retirement, marriage, education or any other long-term goal. They are an appropriate way to grow your money over time. But, before investing, you should know the different types of mutual funds and the benefits they offer.

In this article, we’ll walk you through every detail that you should know before making an investment. We’ll help you identify the different types of mutual funds available so that you can choose the one that's right for you!

1. Index funds

2. Money Market funds

3. Equity funds

4. Debt funds

5. Specialty funds

6. Funds of funds

7. Income funds

8. Balanced funds

Also read: What India's Top Three Mutual Funds Bought And Sold In September 

Also, there are several other types of mutual funds offered by asset management companies. For better understanding, we have segregated the types based on investment objective, asset class, structure, risk and speciality. Now, let’s begin: 

Types of Mutual Funds based on asset class

Equity funds: This type of fund is invested in shares or equity stocks of a company.  It is one of the most popular types of MFs as they provide investors with a chance to earn higher returns. However, the risk associated with these funds is comparatively higher. 

Debt funds: Debt mutual funds invest in fixed income securities such as government bonds, corporate bonds and other debt instruments. These are suitable for investors who want to reduce their risk by investing in safer investments.

Balanced or Hybrid funds: Hybrid mutual funds are a combination of equity and debt funds. The investors invest in both equity and debt instruments to get returns that are good enough to meet goals while reducing risk. Hybrid mutual funds are a good option for investors who want to balance risk and reward.

Money Market funds: These funds tend to invest in liquid instruments e.g. T-Bills, CPs etc. These are also referred to as cash markets and come with risks in terms of interest risk, credit risk, and reinvestment risk.

Open-Ended Funds: Open-ended schemes are managed funds that are not fixed in size. They can be increased or decreased based on demand, and their NAVs are calculated every day based on the current market price.

Close-ended schemes: If you’re looking to invest in a mutual fund and are able to stay invested for a long time, then closed-ended schemes are what you should be investing in. They usually have a tenure of 3-5 years with pre-defined investment value, and investors can redeem their investment at the end of the scheme's tenure.

Interval Funds: These funds have traits of both close-ended and open-ended funds. Interval funds are open for purchase or redemption only during fixed intervals and closed for the rest of the time.

Also read: Equity Mutual Fund Inflows More Than Double In September: AMFI Data

Sector Funds: In this, investments are made in a particular sector of the market. 

Index Funds: Index funds invests money in an Index. To put it simply, investment in a particular index on an exchange so as to mirror the movement and returns of the index.

Funds of Funds: In this, the investments are made in other mutual funds. 

International funds: In this, the investment is made in companies that are located outside of our country.

Emerging market funds: In these funds, investments are made in emerging or developing countries. These are also associated with higher risk.

Global funds:  In these funds, investments are made in any part of the world. Also, investments can be made in the investor’s own company.

Real estate funds:  In these funds, investments are made in companies that operate in the real estate sector.

Market neutral funds:  In these funds, investments are not made directly into the market. The investors invest in treasury bills, ETFs and securities.

Commodity focused stock funds:  In these funds, investments are made in companies that are working in the commodities market.

Exchange-traded funds: These funds are a combination of open-ended and close-ended funds that are traded on the stock markets. Also, these are passively managed funds.

Gilt funds:  In these funds, investments are made in government securities for the long term. 

Asset allocation funds:  In these funds, investments are made in two variants, the target date fund and the target allocation funds.

Inverse/leveraged funds: These funds are managed, unlike traditional mutual funds. It is selling your shares when the stocks go down only to repurchase them at an even lesser cost.

Growth funds: These aim to generate capital gains by investing in stocks that are expected to grow over time. This type of fund invests in companies with the potential for long-term growth; hence they tend not to see short-term fluctuations in value.

Income funds: In these funds, investments are made in fixed-income instruments like bonds, debentures etc.

Liquid funds: In these funds, investments are made in short-term or very short-term instruments like T-Bills, CPs etc.

Pension Funds: In these funds, investments are made in the long term. These investments tend to provide returns by the time the investor is retired.

Fixed maturity funds: In these funds, investments are made in debt and money market instruments.

Capital protection funds: In this, funds are split between investments in fixed income instruments and equity markets.

Tax saving funds: In these funds, investments are made in equity shares. As the name indicates, the investments qualify for deductions under the income tax act. 

There are three risk-based mutual funds: Low risk, medium risk and high risk. As the name suggests, low risks are the funds with minimal risk, medium funds with balanced risks and high risks with higher risks.

Now that you know about all the different types of mutual funds, it’s time to figure out which type is right for you.