Different Types of Mutual Funds in India

Mutual funds are new age investment that provides the investor with flexibility and more options. Its offer one of the most comprehensive, easy and flexible ways to create a diversified portfolio of investments. There are different types of mutual funds in India,  which  offer different options.

Mutual Funds are registered with SEBI (Securities and Exchange Board of India) that regulates security markets prior to the collection of the funds from the investors. Investing in a Mutual Funds simple like buying or selling stocks or bonds online platform. Investors can also sell their stocks whenever they need or want to.

The risk portfolio of mutual funds is clearly divided into different  classes such as equity, debt and money market.

Types of Mutual Funds

Mutual Fund Types Based on Asset Class

Equity Funds

These funds invest in stocks. They invest the money collected from investors from diverse into stocks of different companies. The returns or losses are determined by how these shares perform in the stock market. As equity funds have quick growth, the risk of losing money is comparatively higher.

Debt Funds

Debt funds are mutual funds that usually invest in government securities, corporate bonds etc. These funds are more stable and less volatile to the market conditions. Go for it, only if you are a passive investor looking for a small but regular income with minimal risks.

Money Market Funds

Just like some investors stock trading on the stock market, some money trading on the money market, also known as the capital market. It is usually run by the government, banks or corporations by issuing money market securities like bonds, T-bills, dated securities and certificates of deposits among others. The fund manager invests your money and disburses regular dividends to you in return. If you opt for a short-term plan the risk is relatively less.

Balanced or Hybrid Funds

Balance or hybrid funds are a mix of equity and debt funds. They tend to invest an equivalent quantity in equity and debt funds in order to maintain the investment risk level balanced.

Sector Funds

Sector funds are the funds that stick to one sector of the industry when investing. For example – Pharma sector mutual funds will only invest in those companies that are in the pharma sector. The returns of the investment also depend on the performance of the particular sector.

Index Funds

The index fund is a type of investment that is made to match the working of a market index like BSE and NSE.

Types of Mutual Funds Based on Risks

Low-Risk Funds

These kinds of mutual funds are investing in the debt market where the investment risk is very small. The investments tend to be long-term, but the returns are also moderate due to the low risks associated with it. For example, a low-risk mutual fund will be a debt funds where the investment is made in government securities that are very safe.

Medium-risk Funds

These investments carry the investor with medium danger. Medium-risk mutual funds are ideal for those willing to take some risk in order to obtain good returns on their investment. The portfolio of investments is a mixture of debt and equity funds. The NAV is not that volatile, and the average returns could be 9-12%.

High-risk Funds

These investments are high and are for those who are willing to take a high risk on their investment for an expectation of high returns. High-risk investment invests a majority of the money (investment) in equity stocks of the company. You can expect returns of 15%, although the majority of high-risk funds generally yield 20%.

Mutual Fund Types Based on Investment Goals

Growth Funds

The investor  invested in growth funds with the objective of getting a capital appreciation of its wealth. Growth funds are risky, they gives high returns in the long run. You can expect 15%  to 20% returns.

Income Funds

In this fund Money gets invested in fixed income instruments like government bonds, securities and debentures under income funds. The main objective of this fund is stable income on investment with growth of capital.

Tax-Saving Funds or ELSS

ELSS come under the section 80C of the Income Tax Act, 1961 and qualify for a deduction of up to INR 1, 50,000 for a financial year. The majority of the investment gets invested in equity stocks. There is a lock-in period of 3 years on the ELSS investment.

Capital Protection Funds

The objective of capital protection funds is to protect the money invested and thus the funds get split in between equity and fixed income investments.

Fixed Maturity Funds

In fixed maturity funds, the investment is made in closed-ended debt funds having a fixed date of maturity.

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