Types of Mutual Funds in India

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Getting a handle on what's under the hood helps you become a better investor and put together a more successful portfolio. To do this one must know the different types of funds that cater to investor needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be classified according to both their investment objective (like income, growth, tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units qthen the fund is close-ended).

This section provides descriptions of the characteristics - such as investment objective and potential for volatility of your investment -- of various categories of funds. These descriptions are organized by the type of securities purchased by each fund: equities, fixed-income, money market instruments, or some combination of these.

Classification according to investment objectives
In general mutual funds fall into three general categories:

  • Equity Funds are those that invest in shares or equity of companies.
  • Fixed-Income Funds invest in government or corporate securities that offer fixed rates of return are
  • While funds that invest in a combination of both stocks and bonds are called Balanced Funds.
Maturity PeriodOpen End1. Key Feature - Liquidity 2. Available for subscription and repurchase on a continuous basis 3. Maturity period - N/A
Close End1. Open Subscription through Initial Public Issue 2. thereafter, investor can buy or sell the units on the stock exchanges where the units are listed 3. Maturity period - 5-7 years
Investment ObjectiveGrowth Oriented1. Medium-Long term 2. Major part is invested in Equity 3. Capital Appreciation 4. High risk
Income Oriented1. Short-Medium term 2. Major part is invested in Bonds or debt instruments 3. Regular and steady Income 4. Less risky
Balanced1. Mixture of both Growth and Income oriented. 2. Regular as well as capital gains 3. 50:50 proportion into shares and fixed income securities.
NatureEquity Fund1. Maximum part of their corpus into equity 2. Long term 3. High risk-High return
Debt Fund1. Investment into debt papers 2. Medium-long term 3. Low risk-Steady income
OthersTax Saving1. Provides tax rebate 2. E.g - Equity Linked Savings Scheme (ELSS) , Pension Schemes
Sector Specific1. Securities invested in a particular sector 2. Returns dependent on performance of sector 3. High risk

Last Updated on 12/23/2011

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