Overview of different types of mutual funds

We will different types of mutual funds investments on a different basis. The difference could be due to the time of investment or the risk involved or the special feature of a particular mutual fund. The basis of distinction among different type of mutual funds is as follows:

  • On the Basis of Asset Class
  • On the basis of Structure
  • Based on Investment Goals
  • Based on Risk
  • On the basis of specialty

Different Types of mutual funds Based on Asset Class

1. Equity funds

This is one of the Types of mutual funds investments where money are in stocks. The other name of these funds is stock funds. Learn how to evaluate the best equity funds in the market. The performance of stocks in the market determine the profit or losses. As the risk involved is higher, so the losses incurred would be high as well. Learn what are the top 10 AMCs in India.

2. Debt funds

Money is invested in many instruments like bonds, securities & treasury bills- Fixed Maturity Plans (FMPs), Gilt Fund, Liquid Funds, Short Term Plans, Long Term Bonds and Monthly Income Plans among others (where there is fixed maturity date and the interest rate). Keep learning how liquid funds are taxed. Learn what the best debt funds to invest in 2019. We highly recommend debt mutual fund, if you want small but consistent income with minimal risk.

3. Money market funds

Some investors trade money in the money market, also known as capital or cash market. The autonomy of these funds is in the hands of either government, banks or corporations. They issue money market securities like bonds, T-bills, dated securities & certificate of deposits among others. The fund manager will manage your investments and gives you regular dividends in return. In case an investment is made for short-term (let’s say 13 months), then the risk factor is relatively less.

4. Hybrid funds

Unlike other types of mutual funds, the money invested in these funds is in an appropriate mix of debt and equity funds. The ratio between both of these funds could vary from scheme to scheme. An investor who wants to take risks but at the same time wants to ensure regular fixed returns could opt for this type of investment.

Types of mutual funds Based on Structure

1. Open-ended funds

The investments made under these funds don’t come with any constraints on time period or the number of units. That is, that the investor can purchase these funds or exits when they don’t like the current NAV anytime they want. Which is why the total unit capital of these funds shifts with every entry and exit in the fund. The company can choose to stop investing more funds in this category if they want.

2. Close-ended funds

In this case, the total number of units is fixed and any company cannot sell more than this predetermined number of units. In some cases, there is an NFO decided, after which the trading in these funds is not possible. The funds have a specific maturity period and the fund managers are open to funding any size (however large). According to SEBI guidelines, there needs to be either a repurchase option or listing on stock exchanges to exit the scheme.

3. Interval funds

The money amassed in these funds contain both the features of the open-ended scheme and close-ended scheme. The period of investing & exiting is fixed and no transaction is permitted for 2 years after the purchase. Only those investors who want a lump sum should invest in this scheme.

Different Types of mutual funds Based on Investment Goals

1. Growth Funds

Growth funds are usually invested in shares and growth sectors. It is suitable for those investors who have huge idle money and can take huge risks for high returns. Or it could be for those investors who are positive about a certain scheme. Learn how to invest in mutual funds online.

2. Income Funds

The money invested in this category is in debt mutual funds. It is a mix of bonds, certificates of deposits & securities among others. The investments are made by experienced fund managers who keep the portfolio in tandem to the rate fluctuations without compromising the creditworthiness of the scheme. In other words, the income funds have earned better returns to the investors than the deposits & are best suited for risk-averse individuals who want to park their money for 2-3 years in perspective. But what are the Best investment plans to invest in 2019

3. Liquid Funds

Just like debt funds, the investment of liquid funds is in debt instruments but the investment horizon is up to 91 days. The maximum amount one can invest is Rs. 10 lakhs. The only major difference between the NAV of Liquid fund and other debt funds is that the NAV is calculated for 365 days (including Sundays), whereas in other cases it is calculated on just taking the working days. Learn How liquid funds are taxed.

4. Tax-saving Funds

The investment in ELSS (Equity Linked Saving Scheme) is gaining traction due to its dual benefits to the investors. Must read on ELSS: The best way to invest. The first being generating wealth & the second is saving on taxes and the lock-in period of these funds is just 3 years. The primary investments are in equity funds and you can earn non-tax returns from 14-16%. Learn how to invest in ELSS.

5. Aggressive Growth Funds

The aggressive growth funds, which are slightly on the riskier side, are for the people who want to make steep monetary gains. These funds are susceptible to market volatility & you can choose it to be 1 beta. It means that if the market is showing 1 beta, the aggressive growth funds will show a beta of 1.1 or higher.

6. Capital Protection Funds

This investment is well suited for investors who want to protect their capital, all in all, serving low returns (at max 12%). The investments are in either bonds or CDs and the rest is in equities. You will not bear any loss if you invest money with a 3 year lock-in period.

7. Fixed Maturity Funds

The main advantage of investing in these funds is to earn a return with 3 times indexation. Hence, bringing down the tax charged on it. Fixed Maturity Plans invest in bonds, securities, money market, etc. As in the case of close-ended plans, the FMP works in a fixed maturity period, which could be 1 month to 5 years.

8. Pension Funds

Like any other pension plan, the money invested in this scheme allows the person who’s investing to take the benefit of the long-term saving scheme. Wherein, after the retirement, it will take care of you. Keep reading on the best pension plan of 2019. It could be for many purposes including buying a house or for your children’s marriage or for providing financial security at the time of need. It is highly advisable to consider a pension scheme as relying solely on savings would not be smart (as it gets used up quickly). You can also consider investing in the best monthly income plan.

Types of mutual funds Based on risks

1. Very Low risk

Money invested in liquid funds and ultra short term fund falls in this category of investment and they’re not risky at all. And due to low-risk, there are low returns (hovering around 6%). Investors can use this scheme to fulfill their short-term needs and keeping their money safe.

2. Low-risk funds

In the event of depreciation of the rupee or unexpected national crisis, the investor would look for funds which are less risky and guarantees a return. It could be either a combination or purely in liquid, ultra-short-term or arbitrage funds. Returns are as low as 6% but there is an option to switch to riskier investments when the time is right.

3. Medium risk-funds

The risk of the investment is medium if the money is invested in a mix of debt and equity funds. The level of volatility is medium and the returns are around 9-12%.

4. High-risk funds

All the investors who don’t care about risk consider this type of investment. The money invested is in the high-risk-high-return category and the funds invested need active management. The returns could be 15% or 20% (at max 30%).

Types of mutual funds based on Specialty

1. Sector funds

The money invested in this case is in a single sector of workings. And due to the non-distribution of funds, the risk factor in this type of investment is very high. The recent trends have seen a rise in pharma funds, infrastructure funds, banking and IT. The investor must be vigilant while investing in these funds and exit immediately if the fund is not performing well.

2. Index funds

The money invested is in index funds. The management of these funds is not by a fund manager. In the case of index funds, it just considers stocks and their corresponding ratios and invests money in it.

3. Fund of Funds

In this case, the investments are in diversified funds to offer a slew of benefits to the investors. In other words, if you invest in different funds individually vs investing in the fund of funds and therefore benefitting from investment in different funds, the latter option saves huge costs.

4. Emerging market funds

The investments are in emerging markets then it is sure to give high returns. Though it has some downside as well, like in the case of our country, the investments might not be profitable now but in the long run, it is one of the smartest decisions an investor could take. Unlike some investments made in already established markets like the US or the UK.

5. International/market funds

An investor could also invest in foreign funds from different regions (emerging markets).

6. Global funds

It is quite different from international funds in terms of investment. Unlike, in international funds, in the case of global funds, the money is invested in the market worldwide (including your home country). The risk of investment is very high, considering different factors that affect your returns. Namely, the currency rate, the inflation of that country, the different policies adopted by these countries, the inflation rate and so on.

7. Real estate funds

As the name suggests, the funds are invested in real estate businesses. Though it is an ideal investment for many people, there are still certain risks present in these investments. If invested for a long-term, it negates the legal hassles & also provide some liquidity to your funds.

8. Commodity-focused stock funds

The investment made in these funds is into a diverse portfolio & for the people who have a sufficient risk appetite. There is no guarantee for periodic returns and are either based on the performance of the stock company or the commodity itself. The only commodity where mutual funds can directly invest in gold.

9. Market neutral funds

These funds guarantee fixed returns & are not affected by market conditions. The risk adaptability fo these funds are noteworthy & are attractive to even small investors who can strip the market without stretching the portfolio limits.

10. Inverse/leveraged funds

The selling of stocks under this category is at a higher price only to buy them back in case the price goes down (and hold it until it goes up again in the future).

11. Asset Allocation funds

The investments are in a mix of equity, debt, and gold in an optimum ratio. The inferences set by the fund manager set a pre-designed formula wherein the funds will become flexible and change the ratio. It is almost like hybrid funds, except in this case the fund manager needs great expertise and knowledge in choosing and allocating bonds and stocks.

12. Gift funds

There is an option to gift a mutual fund or SIP to secure the future of your loved ones. What is the basic difference between SIP & mutual funds? Also, read on how to invest in SIP that’s best for you? You can also consider keeping yourself updated on Best SIP Plans to invest in 2019

13. Exchange-traded funds

ETF is just like stocks and dealings of these funds are in stock-exchanges as well. The mutual fund investment in this category is done to gain comprehensive exposure to the stock market as well as specialized sectors. The trading can be done in any time of the day and it may rise & fall many times a day (just like a stock)

Our services at WealthBucket provide services to people who want to invest in mutual funds. These services include equity funds, liquid mutual funds, debt mutual funds or small-cap mutual funds. You can either call us at +91 8750005655 or email us at contact@wealthbucket.in.

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