Mutual funds are basically investment vehicles that comprise the capital of different investors who share a mutual financial goal. A fund manager manages the pool of money that is collected from various investors and invests the money into a variety of investment options such as company stocks, bonds, and shares. Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI), and investing in mutual funds is considered to be the easiest way through which you can increase your wealth.
Types of Mutual Funds in India
Mutual funds in India are classified into different categories based on certain characteristics such as asset class, structure, investment objectives, and risk. Here, we will help you understand in detail the various categories and the kinds of funds under each category.
Thinking of Investing in a Mutual Fund?
Based on Asset Class
Equity funds make investments mainly in stocks of companies. Equity funds are the most preferred investment options among the majority of investors as these offer high returns and quick growth.
Debt funds chiefly invest in low-risk fixed-income instruments such as government securities. Since these funds come with a fixed maturity date and interest rate these are ideal for investors with low risk appetite.
Money Market Funds
Money market funds invest in easily accessible cash and cash equivalent securities and offer returns as regular dividends. These funds come with relatively lower risk and are ideal for short term investment.
Hybrid or Balanced Funds
Balanced or hybrid funds invest a certain amount of their corpus into equity funds and the rest in debt funds. Though the risk involved with these funds is relatively high, the generated returns are equally high.
Based on Structure
Open-ended Mutual Funds
Open-ended mutual funds have no constraints as far as the number of units that can be traded or the time period is concerned. Investors are allowed to trade and exit from the funds at their own convenience.
Closed-ended Mutual Funds
The unit capital that is to be invested in closed-ended mutual funds is fixed and therefore, it is not possible to sell more than the predetermined number of units. The maturity tenure of the scheme is fixed.
Interval funds can be bought/exited only at specific intervals as determined by the company. These are open for investment for a certain period of time only. Usually, the investors need to stay invested for at least 2 years.
Based on Investment Objectives
Growth funds invest a large portion of their capital into stocks of companies having above-average growth. The returns offered by these funds are relatively high, but the risk involved along with is also quite high.
The corpus of income funds is invested in a combination of high dividend generating stocks and government securities. These funds focus to offer regular income and impressive returns to investors investing for more than two years.
Similar to income funds, liquid funds also make investments in money market and debt securities. However, the tenure of these funds usually extends to 91 days and a maximum amount of Rs.10 lakh can be invested in them.
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